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DreamWorks Sued Over Shrek 2 DVD Sales

A proposed class-action lawsuit was filed in federal court in Los Angeles today, (June 2, 2005) seeking unspecified damages from DreamWorks Animation for allegedly misleading stockholders about sales prospects for SHREK 2 DVDs. This is the companys first suit since going public in October 2004.

The suit claims DreamWorks ceo Jeffrey Katzenberg and chairman Roger Enrico failed to disclose in the first quarter the company continued to ship the title "far in excess of the actual demand" and hid the fact that retailers were returning "massive amounts" of unsold DVDs. The shareholder suit, filed by Abbey Gardy, LLP, suggests the studio's actions amounted to "materially false and misleading statements" starting Oct. 27, 2004 and continuing until May 10.

DreamWorks had said in a January filing that the title had sold 37 million units worldwide, then revised the number to 33.7 million in March and announced this finding May 10, so that DWA recorded no revenue from SHREK 2 in the quarter other than from licensing and merchandising. On this news the price of DreamWorks stock dropped from $36.50 to close at $32.05.

A copy of the complaint filed in this action is available from the court, or can be viewed at

The plaintiff seeks to recover damages on behalf of all those who purchased or otherwise acquired DreamWorks securities during the class period.

"We believe the suit is completely without merit and we intend to defend ourselves vigorously," said DreamWorks spokesman Bob Feldman said.

The suit was filed by New York law firm Abbey Gardy. In seeking damages, its filing notes DreamWorks shares fell $4.45, or 12%, to $32.05 following the reporting of disappointing first-earnings.