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Tourists stand outside the Wynn Casino in Macau May 17, 2011. U.S. REUTERS/Tyrone …

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NEW YORK/HONG KONG (Reuters) - Wynn Resorts Ltd Chief Executive Steve Wynn upped the ante in his fight against former business partner Kazuo Okada, accusing the Japanese gaming mogul of improper payments to foreign gaming regulators and forcibly buying back Okada's 20 percent stake in the casino company at a deep discount.

As shares in Okada's Universal Entertainment tumbled 21 percent, he denounced the move as "outrageous," vowed to block it, and called for independent oversight of the Wynn Resorts board.

The latest fiery exchange from the Las Vegas casino tycoon and Okada, 69, a Hong Kong resident who is building his own casino in the Philippines, is the most dramatic since they fell out publicly in January, and has significant implications on their respective business empires.

Both self-made billionaires claim the other made improper payments to win favor in their respective Macau and Philippines markets. Asia is the world's fastest growing gaming region with Macau earning five times the revenue of Vegas and the Philippines rapidly developing.

Wynn said its board had decided Okada was "unsuitable" after reviewing an internal company report. That report said internal investigators found more than three dozen instances over three years in which Okada and his associates allegedly engaged in "improper activities for their own benefit in apparent violation of U.S. anti-corruption laws."

The Wynn report followed a year-long investigation by several outside investigators, including a former director of the Federal Bureau of Investigation, hired by a company compliance committee to scrutinize Okada and his associates.

'OUTRAGEOUS MOVE'

Okada's Universal Entertainment Corp said in an email it was not given an opportunity to review the internal report and called it "outrageous."

"It is now more evident than ever that additional independent oversight is needed on the Wynn Resorts Board. Universal Entertainment will take all legal actions necessary to protect its investment and prevent a forced redemption of its shares," Universal Entertainment said.

Okada, Wynn's largest shareholder who made his own fortune off pachinko machines -- a cross between pinball and slots -- sued Wynn in January for denying him financial information related to a $135 million donation the company made to the University of Macau, which he had termed "inappropriate."

The U.S. Securities and Exchange Commission is now looking into the donation.

Gaming industry consultant Jonathan Galaviz said the escalating battle bodes ill for both Wynn and Okada, who were best friends and partners for 12 years before things went sour.

"With allegations of this magnitude being thrown back and forth, the future business prospects for both companies in Asia will certainly be curtailed. Allegations such as these could trigger multiple regulatory reviews from government agencies in the U.S., Hong Kong, the Philippines and Japan."

Shares in Universal Entertainment plunged 21 percent, while Wynn Macau rose 3.2 percent, in line with Hong Kong-listed casino peers.

Wynn has accused Okada, who is constructing a $2 billion casino in the Philippines, of improper cash payments and gifts totaling about $110,000 to foreign gaming regulators. So far there has been no formal regulatory investigation into Okada's business in the Philippines.

Wynn, who owned a smaller stake in his eponymous casino company than Okada did, last year stripped Okada of his vice chairman title. The $14 billion casino company said it wants Okada resign as a director of Wynn Resorts, and that it also recommends that he be removed as a director from the board of its Hong Kong subsidiary, Wynn Macau Ltd.

Wynn said on Sunday it had bought back Okada's 24 million shares held by Aruze USA Inc, a unit of Universal, worth $2.7 billion based on Friday's closing price of $112.69, a discount of around 30 percent.

It promised to pay him $1.9 billion in 10 years via a promissory note paying annual interest of 2 percent.

The falling out between the longtime friends surprised many in the industry. Okada had helped pull Wynn back from the brink after he unloaded his Mirage casino to MGM Grand a decade ago.

Their friendship was so close that Wynn had proclaimed in 2008: "I love Kazuo Okada as much as any man that I've ever met in my life. He's my partner and my friend. And there is hardly anything that I won't do for him."

However Wynn has become increasingly concerned over Okada's plans to open a casino in the Philippines, which would put them in competition with one another.

Michael Koehler, assistant professor of business law at Butler University, who blogs about the U.S. Foreign Corrupt Practices Act (FCPA) said Wynn's actions may be his way of getting in the good graces of enforcement attorneys but was unlikely to make his own SEC scrutiny go away."

"It could possibly increase the scrutiny. If Wynn had on its corporate board a person like this, who Wynn itself is alleging to have violated FCPA, what else do I need to look at?"

TIT FOR TAT

Wynn Resorts said on Sunday its probe stemmed from concerns the Wynn board had about Okada's activities in the Philippines and statements he had allegedly made to Wynn directors that gifts to regulators are permissible in Asia.

The company said the investigation, led by Louis J. Freeh, a former director of the FBI, found numerous violations of the FCPA by Okada. A source familiar with the matter said the report alleged that Filipino regulators had received dinners, Chanel bags and suites at the Wynn Macau, all courtesy of Okada.

The next hearing in the case is scheduled for February 23.

Wynn Resorts also filed a lawsuit against Okada and his company in Nevada District Court, Clark County, for breach of fiduciary duty and related offenses. The company said it also plans to communicate with the appropriate regulatory agencies and government authorities on these matters.