‘Constructive trust’ is proposed in Wynn art suit

David Strow

Monday, May 8, 2000 | 11:09 a.m.

A New York investment firm is trying to place the Bellagio resort's prized $200 million art collection into a legal trust -- a move designed to stymie outgoing Mirage Resorts Inc. Chairman Steve Wynn from profiting at the expense of shareholders by purchasing any of the art at below-market prices.

In a court filing late last month, Crandon Capital Partners asked for the Bellagio's art collection to be placed in a "constructive trust." The move would permit the Bellagio to continue displaying the art, but would freeze any proceeds from the sale of pieces of the collection.

The trust would only affect the art directly owned by Mirage, not the art owned by Wynn and leased to the Bellagio. Wynn's collection is valued at $200 million, making the entire collection worth $400 million.

The move, the filing said, "would assure that it is not sold by MGM (Grand Inc.) to Steve Wynn ... at an inadequate price thereby favoring his interests over those of Mirage public shareholders."

Crandon filed suit against Mirage and Wynn on March 29 over provisions in Mirage's $6.7 billion merger agreement with MGM Grand. Specifically, Crandon is fighting a clause in the agreement that could, in theory, give Wynn the opportunity to purchase the art at prices below those offered by another bidder.

This agreement kicks in if MGM Grand receives an outside bid to acquire a piece of the Bellagio's art collection. Before making such a sale, it would have to offer Wynn first right to buy the art piece.

Wynn could match the outside offer, but he would also have the right to purchase the art at one of two prices -- the appraisal value of the painting set by auction houses Christie's International or Sotheby's, or the book value of the painting. If one of these prices were below the outside offer, MGM Grand would still be compelled to sell the art to Wynn at the lower price.

If this situation arose, Crandon argues, Wynn could simply "flip" the art piece to the outside buyer at the price they were willing to pay MGM Grand, allowing him to pocket a quick profit. This would deprive Mirage shareholders of proceeds they are entitled to receive, Crandon said.

"(Crandon) believes that discovery will demonstrate that one of the reasons Wynn agreed to the merger is because he would benefit by receiving the art at a bargain price and receiving other benefits," said an affidavit by Crandon attorney Samuel Rosen. "Absent this flagrant violation of fiduciary obligations, Mirage could have negotiated a better price for its shareholders either with MGM or a third party."

Rosen claimed in his affidavit that Mirage is on the verge of selling an art piece to Wynn under the provisions of this agreement.

If the trust is approved, both Mirage and MGM Grand would be free to sell any art pieces from the collection. But those proceeds would have to be held in trust until a judge ruled on whether Wynn's agreement with MGM Grand was valid, and whether proceeds should be distributed to Mirage shareholders.

To date, Mirage has not responded in court filings to Crandon's claims. In its most recent quarterly report, Mirage merely said that it believed the charges "are without merit."

Judge Nancy Saitta is scheduled to issue a decision on establishing a trust on May 22.