Midway shareholder suit dismissed

Despite suspicious timing of stock dump, judge finds no evidence executives' "puffery" deceived public to inflate share price of doomed publisher.

After years of financial turmoil, Midway Games finally went bankrupt in February. While the bankruptcy proceedings have wrapped up with the bulk of the business sold to Warner Bros., the fallout from the publisher's prolonged collapse continues.

Midway executives: Masters of the fatality, the babality, and the legality.

The latest news surrounding Midway's demise wraps up a lawsuit alleging that executives--including former CEO David Zucker--willfully deceived shareholders about the company's financial well-being in order to artificially inflate its stock price.

Last week, a district court judge dismissed the suit, saying the shareholders "failed to show that defendants said or did anything more than publicly adopt a hopeful posture that its strategic plans would pay off. Such preening for the financial press is classic puffery. Even if these statements were not puffery, plaintiffs cannot establish that they were false when made." (Emphasis in original.)

The shareholders pointed to two specific events to back up their allegations, the first of which was the August 2005 purchase of Australian developer Ratbag Holdings. The publisher at the time said the acquisition would bolster Midway's in-house development capabilities, but it shuttered the studio just four months later, which contributed to the publisher's $13 million in restructuring charges for the year.

The other event mentioned in the suit was the cancellation of Midway's contract with developer Stainless Steel for the PC real-time strategy game Rise & Fall: Civilizations at War. Midway yanked the project from (quickly shuttered) Stainless Steel in November of 2005 and handed the game off to its own San Diego studio. The shareholders allege the move cost Midway millions in additional development costs that it concealed from shareholders.

The judge was swayed by neither charge, faulting the shareholders for failing to properly back up their allegations. However, the judge did appear to side with the shareholders in their suggestion that executives knew a rumored acquisition of the company by Viacom would not go forward before then-majority shareholder Sumner Redstone declared as much in late December 2005. Specifically, the judge frowned upon the executives collectively selling more than $10 million in Midway shares over the week before Redstone publicly squashed the acquisition rumors and used his own majority stake in the company as collateral for a personal loan, actions which sent Midway stock spiraling downward.

"The timing of Defendants' extensive stock sales vis-a-vis Redstone's announcement does seem a little too perfect," the judge determined, "and defendants may well have possessed and traded on knowledge of Redstone's plan before it was announced to the public."

However, even if that were proven, the judge said it would not have supported the shareholder's actual allegations of misleading shareholders to falsely inflate the publisher's price and so would not have helped their specific case.

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Discussion

13 comments
deviant74
deviant74

Rated teen Mortal Kombat. I wish I owned shares of midway just so I could have sold them and every one would think I had some insider Info. Then I would get up on the stand and look at all the shareholders, and say "you guys are all dumb".

Derek494
Derek494

midway was bought by warner brothers, MK9 is still in the works, and honestly midway set the standard for fighting games back in the 90's unfortunatly as much as i love mortal kombat more and more games capturing the same atmosphere and ideas came out and it wasnt just tekken SF and mortal kombat anymore, back then mortal kombat was a massive stand out from other fighting games because the playing field for that wasn't so massive it was only several major titles, now you have Fight night, UFC, SF, Tekken Mortal kombat, dragon ball Z, soul calibur, virtua fighter,marvel vs capcom, overall all of these fighting games are good, but midway wasn't consisten with mortal kombat as much as the other companies were with their games, and midway couldn't seperate themselves enough to make their fighting games seem alot different from the others, MKDA and MKD were both awsome on the ps2 but after that their wasn't much of an advancement, and yes MK VS DC was a good overal game, but mortal kombat fans want mortal kombat & that was another problem, they expected that to be a solid release when really it should have been a side project as SF and Marvel Vs Capcom. but they didn't have the funding to both at once ethier, I give midway alot of credit i was raised on mortal kombat and MK 9 is still in the making and i seriously hope this shocks the scene since MK vs DC was a let down. the funding is their & consistency is the next tool,i think things will turn around for them

green_dominator
green_dominator

@lecter38 Sorry, Sometimes I get ahead of myself.... I just noticed e few people bagging on Midway and I remember their earlier influence in the world..... I think they deserve a little more respect for what they did than to be hated for trying new ideas and having bad financial partners..... In short, I wasn't commenting the article more so the people commenting the article....

lecter38
lecter38

@green_dominator Wth got anything u said to do with the article above, try to understand the article properly before commenting.

green_dominator
green_dominator

Listen up folks..... Midway along with the Japanese arcade game makers made the arcades what they were.... Midway was actually the largest manufacturer of pinball machines in North America, dare I say the world.... Midway did many things for games, they in the 1980's made innovative games like Spy hunter and Robotron among others... Mortal kombat was their most innovative title, I think it was when they stopped makinf pinball machines that things started going south.... It wasn't just the death of pinball, home consoles just got better and Arcade couldn't compete, Nobody born in the eighties knows the hayday of the arcade scene, kids born then know a little but I was born in the 1970's I remember..... It was nuts, Never was it just a crappy room in a mall, most times it was a building unto itself and they had everything you could ever want....... Midway lives on in the games that will now be made by Warner IInteractive, The shareholders need to drink a nice tall glass of shut the hell up.......

StJimmy15
StJimmy15

Ah Midway... At least half of my N64 games had their logo on 'em. But recently they really couldn't keep up. Their shareholders on the other hand, need to grow up. You can't sue every time life throws you a curveball.

JOKER677
JOKER677

i think ed boon the creator of mortal kombat is working on a new mk but i forgot midway went out of business

Gen007
Gen007

midway is an example of a company that just couldn't innovate or even adapt and copy well like most other companies. Its like they were stuck in the past and it showed in their games.

Trogeton
Trogeton

Why would someone file something on a VIDEO GAME c'mon now movie maybe but this

Reiken37
Reiken37

Wow, this is sad, I miss MidWay, I loved playing Mortal Kombat... Companies like this that have been around forever shouldn't be in this much trouble. Well that CEO sure effed up. Oh and by the way.."Ratbag Holdings" Really, who would hire a guy with that name, that's like asking for a beating in every department. Well... R.I.P. Midway, I"ll hold a funeral for you.