Creditors have filed suit against bankrupt gaming publisher Midway Games, according to GAMASUTRA. The suit names majority stakeholder Sumner Redstone, his National Amusements holding company, investor Mark Thomas and Midway chairman Shari Redstone, as well as former and current members of the board.
Creditors are particularly upset about the November 2008 sale of the company, accusing the defendants of breach of fiduciary duty, corporate waste and unjust enrichment. The suit complains that Sumner Redstone and Thomas made moves regarding the firm that benefited them "to the detriment of Midway." Additionally, the accusers say the board simply rubber stamped Redstone and Thomas' decisions.
At the end of last year, Sumner Redstone sold his 87% share in the company to Thomas for $100,000. As part of the deal, Thomas took over $70 million of debt from Midway, which hadn't post positive earnings since 1999. In February 2009, the MORTAL KOMBAT creator filed for bankruptcy, because the sale allowed Midway creditors to demand near-term payment.
The suit alleges the sale allowed Redstone and National Amusements to file losses of $700 million, which gained them a tax refund, while leaving Midway insolvent. Additionally, the creditors allege that Thomas was "an appropriate owner," because he had no games industry experience and no assets to invest in the failing company.
Moreover, the suit states that Redstone tried to hide a $90 million investment in the company in February 2008 by calling it debt, therefore avoiding "protections previously provided to Midway's noteholders while at the same time taking for [himself] the secured debt."
The suit asks that the Redstone-Thomas deal be ruled fraudulent and asks for compensatory and punitive damages and that $90 million in "debt" be changed to equity.
Midway had no comment on the suit.
Rick DeMott
Animation World Network
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