Steven Spielberg, David Geffen and Jeffry Katzenberg are in legal trouble. Their Dreamworks Animation SKG has been sued by one of its investors over alleged violations of Federal Securities Laws.
Charles Paddock, a DreamWorks shareholder suing on behalf of himself and other investors, has alleged that the studio failed to inform its investors in a timely fashion that it expected its 2013 flop Turbo would be a money loser.
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The studio took a $13.5 million write-down for that film in February.
On July 29th, it revealed that the SEC was investigating the studio over possible improprieties related to that write-down. The revelation led to its stock plummeting from $22.66 per share on July 29, 2014, to $19.20 per share on July 30, 2014, after it had already fallen from $36 at the end of 2013.
While Dreamworks may not have committed any crime or be guilty of any malfeasance, the stock drop clearly motivated the law suit. Also, last Friday its shares had already rebounded making up almost all the losses closing at $21.93.
The lawsuit states, “As a result of the defendants’ wrong acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages.”
Paddock further alleges that Dreamworks, “made false and/or misleading financial statements, and failed to disclose material adverse facts about the company’s business, operations, prospects and performance, ” between October 29, 2013 and July 29, 2014.
The suit was filed in the U.S. District Court for the Central District of California and the deadline for the company’s shareholders to join it is September 30, 2014.
It might be hard for the plaintiffs to prove their case considering the fact that Dreamworks posted a net income of $55.08 million for 2013 after a net loss of $36.42 million in 2012. This in spite of a $43 million decline in total revenue in 2013 from 2012.
Also, should the SEC clear the company and find no cause for any criminal charges, then that would certainly torpedo the suit.