Midway creditors sue old, new owners
Bankruptcy proceedings get uglier with allegations of improper conduct leveled at Sumner Redstone, Mark Thomas over $100,000 sale of controlling interest in publisher.
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Just days after Midway Games filed for bankruptcy, a number of its creditors filed a formal objection to the November 2008 sale of controlling interest in the company for the bargain-basement sum of $100,000. That deal saw media mogul (and executive chairman of GameSpot parent company CBS) Sumner Redstone sell his 87 percent stake in the Mortal Kombat publisher--valued at $30 million--to Mark Thomas, along with millions in secured loans that Sumner had made to the publisher through his National Amusements Inc. holding company.
Now the creditors have gone beyond their initial objection and outright sued Redstone, Thomas, and the Midway board of directors. At the heart of the dispute is the sale, which creditors say "caused Midway irretrievably to lose the ability to take advantage of its valuable accumulated net operating losses and other tax assets." In other words, the publisher was robbed of its losses.
According to the complaint (filed as part of Midway's bankruptcy proceedings), Redstone's sale of Midway resulted in more than $700 million in tax losses that would offset his taxable income and entitle him to refunds. Those offsets could have been attractive to a potential buyer of Midway, but with the company's value effectively set at $100,000, the suit states that the publisher lost the ability to claim them in a restructuring or sale.
As the controlling shareholder in the company, Redstone owed a fiduciary duty to Midway and its creditors, the complaint alleges, one that he violated by acting solely in his own interest at the expense of the company and the debt holders. Meanwhile, Thomas (who the suit describes as "an individual of relatively limited means and sophistication") is alleged to have purchased the publisher "for the sole and exclusive purpose" of collecting on millions in secured loans that National Amusements had made to Midway prior to the bankruptcy.
A spokeswoman with National Amusements told Bloomberg News, "This suit is completely without merit. The conduct of Mr. Redstone and NAI was entirely proper, and we strongly disagree with any suggestion that Mr. Redstone or NAI breached any fiduciary duties."