Former Acclaim boss slammed in court docs
Greg Fischbach takes a beating in documents dropped in NYC bankruptcy proceedings; accused of operating Acclaim "as if it were a personal piggy bank."
Last Friday in US Bankruptcy Court in New York, the court-appointed trustee charged with unraveling the finances of the once-mighty game publisher Acclaim Entertainment, dropped a 47-page complaint on the desk of Judge Melanie L. Cyganowski that spoke directly to the heart of what may have driven the company deep into financial ruin.
The complaint--which seeks nearly $150 million in damages from a group of former Acclaim executives, including Acclaim cofounders Gregory E. Fischbach and James R. Scoroposki, Rodney Cousens, Gerard F. Agoglia, Edmond P. Sanctis, Bernard Fischbach, James Scibelli, Robert H. Groman, Michael Tannen--paints a picture of tawdry dealings that laundered millions of dollars through contrived avenues that netted the above defendants millions of dollars, but creditors and former employees little or nothing.
The complaint, which seeks a jury trial to determine culpability alleges that "defendants abused their positions of authority and responsibility by operating Acclaim in many instances as if it were a personal piggy bank."
It says the defendants "misrepresented profits and revenues in public filings with the Securities and Exchange Commission; paid each other undeserved salaries, fees and bonuses; allowed highly compensated directors and officers to pay themselves additional 'commissions' through third-party entities; violated Audit Committee standards by allowing members to receive fees from Acclaim; and placed their own personal financial interests ahead of their fiduciary duties to Acclaim."
The trustee says he discovered the alleged foul play--what he calls "substantial acts of corporate waste"--through information available in Acclaim's SEC filings as well as initial documents related to the bankruptcy petition Acclaim filed previously, on September 1, 2004.
Highlights of the document--which at times read like a script for a remake of Animal House (For example: "after Acclaim filed the bankruptcy petition, senior management abandoned the Company's premises and converted or destroyed files, valuable artwork, furniture and other property belonging to Acclaim.")--include the following allegations:
That various defendants manipulated the books of the company during fiscal years 2000 and 2001. In those years, the trustee alleges, "Acclaim incurred large, systemic, cash flow deficits," and as a result "desperately needed additional financing to stay in business." For the fiscal year ended August 31, 2000, Acclaim reported a net loss of $113.8 million on net revenues of $188.6 million, and as of August 31, 2000, Acclaim's liabilities exceeded its assets by almost $100 million, according to the allegations.
The result of those losses, and others, was a complete mismanagement of the loan amounts, as well as other monies that came under the control of one or more of the defendants. "The recent history of Acclaim is replete with directors and officers rewarding each other with rich employment contracts and bonuses despite the Company's serious financial difficulties," the trustee says.
Fischbach and Scoroposki apparantly suffered little.
"As a result of their stockholdings and executive positions, and despite Acclaim's severe ongoing financial problems, defendants Fischbach and Scoroposki were able to secure employment contracts that provided them with rich salaries and benefits from Acclaim without requiring them to devote full or even passing attention to their Company duties."
The trustee says of Fischbach that as result of signing a "series of employment agreements" he maintained "a base annual salary of $775,000 plus 3 percent of the net pre-tax profits of the Company up to $50 million and 3.5 percent of the net pre-tax profits over $50 million."
While Acclaim burned, Fischbach fiddled--or at least didn't work much and had time to fiddle.
"Neither Fischbach nor Scoroposki had any obligation to devote any particular amount of time on behalf of the Company. Shockingly, Scoroposki, while he was employed by Acclaim, was permitted to earn fees from other companies, Jaymar and Jansco."
Those two companies formed a funnel-like sham that directed monies paid from Acclaim's debt-ridden accounts back into Scoroposki's pockets, or so alleges the complaint.
"Despite his connection with Acclaim and his already munificent compensation, during the five-year period leading up to the filing of the bankruptcy petition, the directors of Acclaim permitted Scoroposki to pay purported sales commissions to in the sum of $1,290,387 to Jaymar, which ultimately were for Scoroposki's direct benefit."
The complaint says "these wasteful commission payments could easily have been avoided by having the Company take direct orders from vendors for merchandise. In addition, pursuant to his employment agreement, Scoroposki was also allowed to perform services and receive commissions from Jansco. During the five-year period leading to the bankruptcy, Acclaim paid Jansco sales commissions of $1,133,216."
Fischbach and Scoroposki weren't the only ones to benefit from the schemes in place. Others also laid claim to the ill-gotten gains. The trustee claims that "Acclaim's Board exhibited a similar pattern of generous compensation to its employees to the point that it constituted an obvious waste of corporate assets."
Rod Cousens, who was bumped from COO to CEO in early 2003, comes in for attention as well.
"Pursuant to Cousens' employment agreement," the trustee claims, "Acclaim loaned him $200,000 on April 30, 1998, which was due on April 30, 2002. On June 25, 2002, the Board of Directors extended Cousens' loan for an additional year to April 30, 2003. As of March 31, 2003, the balance due on the loan was $303,000. Pursuant to an employment agreement between the Company and Cousens dated January 16, 2003, the Board gave him bonuses totaling $800,000 and offset the loan with the bonuses as of April 30, 2003. All of this occurred while the Company was hemorrhaging money."
The complaint lists dozens of irregularities, and seeks damages based on a number of legal theories and statutes.
Among some of the oddities described: the company paid no taxes after August 31, 2001; no finance records were preserved after it filed for bankruptcy in September, 2004--the trustee found art stripped from the company walls, computers missing from the offices, and no records that could be used to document the finances of Acclaim during its fall from grace. In addition, the company paid no heed to The Worker Adjustment and Restraining Notification Act when it shuttered its Long Island, NY, and Austin, TX, offices in late August 2004.
On behalf of creditors owed money by Acclaim, the trustee is alleging eight counts or instances of Breach of Fiduciary Duty, which violate SEC regulations, as well as other violations of the Securities Exchange Act of 1934.
All told, the trustee alleges that the defendants enriched themselves to the tune of nearly $150 million, money the trustee hopes can be recovered through legal proceedings and redirected to those parties who are still owed compensation.
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