Majesco shareholders threaten another lawsuit

[UPDATE] Majesco responds to investor group's accusations and conditional offer to purchase shares above market value.

The ongoing drama in the upper echelons of Majesco management shows no signs of letting up.

After the publisher's fortunes took a nosedive last July, investors filed a handful of class-action lawsuits against it, claiming the company knew it wouldn't meet released earnings forecasts and that it flooded retail channels with unwanted products to artificially boost income projections. Majesco's financial woes piled up in the latter half of the year, it retreated from the premium game space, and just last month two of its board members resigned, saying it was their only option when Majesco CEO Morris Sutton threatened to walk out if "certain other members of the Sutton family" were fired from the company. Sutton's sons, Jesse and Joseph, are Majesco's president and executive vice president of research and development, respectively.

Now a group of Majesco shareholders, who represent nearly 11 percent ownership in the company, are threatening to sue the publisher, accusing Morris Sutton of ignoring his duty to the shareholders and running the company solely for the benefit of himself and his sons. In a filing last week with the Securities and Exchange Commission, the investor group Trinad Capital Master Fund Ltd. cites a number of factors contributing to its conclusion.

Beyond pointing to the company's rapid financial decline, the shareholder lawsuits, and the board members' resignations as evidence of mismanagement, the group notes that Jesse and Joseph Sutton are being paid inordinately high salaries considering the company's performance. Jesse was paid $550,000 for the fiscal year 2005, while Joseph earned $246,000.

"Jessie and Joey Sutton do little to further [Majesco's] business and strategic objectives and have been placed in such high-paying positions of management as a result of Morris Sutton's selfish desire to compensate his own children at the expense of [Majesco] and its shareholders," Trinad alleges, maintaining that the sons should resign or be removed from the company.

The group also says that in the same year, Majesco paid approximately $2.3 million to a printing and packaging company coowned by Morris Sutton's brother. What's more, the group says that on January 25, 2005, a day before the company's offering of 6 million shares of common stock, Jesse Sutton's father-in-law violated securities laws by filing a notice to sell more than $343,000 in stock.

Perhaps most unusual about the filing is its record of a pair of Trinad group's attempts to purchase large quantities of Majesco stock at prices well above market value. An offer made last October to purchase $7.5 million of shares at 20 percent above market value received no response from the company's board of directors, which the group called "a gross and blatant disregard of the interests of [Majesco] and its shareholders."

Despite that, the group made another offering last week, this time to purchase $3 million of shares at 27 percent above market value to remedy the publisher's liquidity issues and help it meet Nasdaq requirements to avoid Majesco stock's delisting from the exchange. There are some strings attached, however. Trinad wants to appoint a majority of the company's board of directors, and Majesco must decide on the offer by the end of business tomorrow.

"We are confident that our proposal is very generous, particularly considering the company's continued poor performance and current and deteriorating financial position," Trinad wrote in its offer letter to Majesco. "Time is clearly of the essence, as any further diminution in shareholder value is simply unacceptable."

[UPDATE 3/29]: Majesco has responded to the Trinad group with an open letter today, and while it doesn't reject the proposed offer outright, it doesn't leave much room for doubt as to where the publisher stands on the issue.

Majesco's response points out that Trinad's conditions on its offer would give the group majority control of Majesco's board of directors, even though Trinad would own less than 20 percent of the publisher. Furthermore, the letter contradicts Trinad's assertions that Majesco was unresponsive to previous offers, as well as its assertion that the company is undergoing a liquidity crisis.

"We are committed to executing our revised business model for the long-term benefit of all of our shareholders," the letter reads, "and believe that our company will remain a viable player in the interactive entertainment industry for the foreseeable future."

26 Comments

  • Merl57

    Posted Mar 29, 2006 10:34 am PT

    Sounds like Nepotism to me.

  • SavoyPrime

    Posted Mar 29, 2006 8:51 am PT

    Majesco is on a hell of a downward spiral.

  • arvikatarn

    Posted Mar 29, 2006 8:40 am PT

    Dam i loved Psychonauts. got many good laughs here and there

  • Red122

    Posted Mar 29, 2006 8:24 am PT

    Well one Psychonauts was not developed by Majesco all they did was Publish it as in giving money to Double Fine who produced and developed the game. Anyways Majesco had one good game they made and that was Bloodrayne all others suck. And also double fine has said that a Psychonauts sequel is coming who will publish it? Will Microsoft???

    "Foolish little brother. If you want to kill me, then hate, spite, and survive pathetically."-Itachi Uchiha

  • skrewz2yewzyaho

    Posted Mar 29, 2006 6:13 am PT

    Ok, for the last time people... Majesco did NOT make Psychonauts. DoubleFine Productions did. They're the Developer. They're the ones who built the thing. I'm also pretty sure they managed to retain the rights (at least to some degree) to the franchise.
    However, Majesco did provide the funding that allowed doublefine to finish making it after Microsoft pulled out of their publishing agreement. They also paid for marketing and distribution.
    It is a shame that Majesco's having so much trouble these days because they were willing to take a risk and fund different titles. If the investors in that company knew anything about the industry and Majesco's place in it, they would have viewed their investment in the company as a risk as well. But it sounds like there are serious problems within the company that have nothing to do with the performance of their games.

    At the end of the day, it's unfortunate that Majesco couldn't work out their internal problems. Developers of unique games have one less place to secure funding.

  • jonnyjd

    Posted Mar 29, 2006 5:15 am PT

    Wow...pissed off shareholders. But it looks like they have a good point and Morris doesn't seem to be making good decisions.

  • chrisdojo

    Posted Mar 29, 2006 5:14 am PT

    alright....

  • Lauryn2000

    Posted Mar 29, 2006 4:16 am PT

    Majesco........................... who?

  • mclazyj

    Posted Mar 28, 2006 11:08 pm PT

    Drevan, I am currently playing Advent Rising. And while I am giving it the benefit of the doubt due to Majesco's handling of the product. But there is so much that could of been done better with more time and that is why it got panned. But there is a good story there, just waiting to be used in a better manner.

  • Drevan

    Posted Mar 28, 2006 10:51 pm PT

    hopefully their good games will get picked up by another publisher... psychonauts, bloodrayne series, and advent rising (which was a good game, and if you say otherwise you obviously never took the time to play the game, just needed a couple more months in the development pipeline to iron out the bugs)

  • ghostadv

    Posted Mar 28, 2006 7:33 pm PT

    Those shareholders certainly have a right to be pissed, with that guys kids getting paid a bunch of money for basically doing a bad job.

  • Speerbrecker

    Posted Mar 28, 2006 7:29 pm PT

    Message to shareholders....

    Majesco makes games that do not sell. Therefore you will be taking a loss on your investment.

    Try throwing your money away on GM, they seem to be taking the hit more slowly.

  • John_of_Fire

    Posted Mar 28, 2006 7:02 pm PT

    Who is the Trinad group? I'm wondering if stockholders are pushing this in hopes that the Trinad deal will go threw? The stockholders are probably hoping for a buyout.

  • i_love_my_ds

    Posted Mar 28, 2006 6:51 pm PT

    Majesco already said this was its last year..... too bad cuz its a good company.

  • PowerBomb

    Posted Mar 28, 2006 6:16 pm PT

    Darn Shame! Bad business means gamers miss out. However, Majesco has made a few gems like Nanostray!

  • NeoJedi

    Posted Mar 28, 2006 4:52 pm PT

    This is really too bad because Psychonauts was such a great game. Guess they are self-destructing now.

  • theakis

    Posted Mar 28, 2006 4:49 pm PT

    Dont know what is going to happen, but Psychonauts was an amazing game. And especially for Pc, that titles like that are almost non existent. Pity.

  • eckertt001

    Posted Mar 28, 2006 4:26 pm PT

    Anybody hear a toilet flush?

  • ghsacidman

    Posted Mar 28, 2006 4:00 pm PT

    Majesco was great, then came Advent Rising...... the game with so much potential that I almost cried when it turned out to be terrible. I was kinda hoping they'd make it through this, and make a sequal to Psychonauts and Advent Rising (one that reinvents and finds Advent's truely large potential).

  • thefjk

    Posted Mar 28, 2006 3:42 pm PT

    Never heard of that Company before! They must really be poor at this!

  • MadonnaProject

    Posted Mar 28, 2006 3:36 pm PT

    Well majesco has come up with some good titles, i persoanally really liked advent rising and as we all know payshonauts was amazing. anyhow i feel sorry to see such a wonderful comapany hounded by some dumb people. whoever they maybe.

  • Doc_Proc

    Posted Mar 28, 2006 2:57 pm PT

    [This message was deleted at the request of a moderator or administrator]

  • Donkeljohn

    Posted Mar 28, 2006 2:53 pm PT

    If you own the company, you can do so for your own benefit, but if you have shareholders Net Income should be directed to them in the form of dividends.

  • Master__Shake

    Posted Mar 28, 2006 2:50 pm PT

    They've always been about nepotism, this surprises it's shareholders how really?

  • cloudstrife75

    Posted Mar 28, 2006 2:42 pm PT

    Majesco has some unhappy shareholders... and for darn good reason!! i would be ticked off myself if i was a shareholder of majesco and this stuff was going on with upper-management

  • buildar

    Posted Mar 28, 2006 2:40 pm PT

    Majesco is going down the hole, then again they already stopped publishing anything good. Now its just crappy budget titles and poor handheld games. I'm not sure if i'll miss them. However more companies means more competition which usually means better products! We'll have to wait and see what happens.

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