Stockholders sue Majesco en masse

After the Electronic Entertainment Expo in mid-May, Majesco was looking like the game stock to buy. The previous month, Psychonauts had been released to rave reviews. Expectations were also high for Advent Rising, a sci-fi epic written by celebrated author Orson Scott Card (Ender's Game), which the publisher was hyping with a million-dollar sweepstakes. The company had also scooped up the game rights to the upcoming Aeon Flux movie and the classic film Taxi Driver.

Wall Street's positive image of Majesco was reinforced in early June, when the company announced better-than-expected earnings for the fiscal quarter ending on April 30, 2005. The company's stock (NASDAQ: COOL) was riding high, hovering around $9 a share, and chairman and CEO Carl Yankowski was talking up Majesco's fortunes. "We are entering the important second half of our fiscal year with confidence that we are well positioned to achieve our objectives for full year 2005," he said in a statement. "We remain focused on global growth, both organic and otherwise."

Just over a month later, Majesco had undergone an extreme reversal of fortune. On July 12, Yankowski abruptly quit after the company sharply downgraded its financial outlook for the year. Slow sales of Psychonauts along with Advent Rising's commercial and critical failure had reduced Majesco's projections from annual net revenue of between $175 and $185 million to between $120 million and $125 million. Its estimated annual profit also fell steeply, going from $16 to $18 million in operating income to an operating loss of $16 to $19 million.

Majesco's stock took a drubbing as a result of the company's lowered estimates. In the 24 hours after the July 12 announcement, its share price fell 47 percent, at one point trading as low as $3.25 per share. Today, Majesco's stock closed at $3.42, well beneath its July 12 price of $6.89, and several atmospheres below its 52-week high of $23.66.

Unsurprisingly, Majesco stockholders are mad about the steep decline--mad enough to get litigious about the company that they partly own. This week, four class-action lawsuits have been filed against the publisher, with three filed today alone. The suits--handled by the firms of Chitwood Harley Harnes LLP, Brian M. Felgoise PC, Schatz & Nobel PC, and Weiss Bershad & Schulman LLP--all claim that Majesco executives overestimated earnings.

Several of the suits name Yankowski and then-chief financial officer, now chief accounting officer, Jan E. Chasen as codefendants, claiming they personally knew Majesco could not meet earnings forecasts if Psychonauts and Advent Rising fell short. The Weiss Bershad suit charges that Majesco flooded retailers with products they knew would be returned in order to boost income projections and keep the stock price inflated. The suit contends that the main motivation to keep the share price high was Majesco's secondary stock offering on January 31, which saw the company reap $75 million in gross revenue and $42 million in net proceeds.

GameSpot will have more on this developing story as events warrant.