Genius Products, LLC, which was forced into bankruptcy in 2011 by the WWE over an $8.5 million debt, has accused the Weinsteins of defrauding it of $130 million over several years beginning in 2007.
The complaint was filed in a California court by Alfred Siegel who is serving as Genius’ chapter 7 trustee. It accuses TWC of forcing Genius into “onerous and one-sided” agreements which led to a fraudulent transfer of fund from the bankrupt company.
In response, an attorney for WTC released a statement saying, “We think the Trustee’s claims are gravely mistaken and will not succeed. The story the Trustee wants to tell simply is not what happened and does not square with the facts. The agreements that the Trustee complains about were negotiated at arm’s length. The Weinstein Company was not on both sides of the negotiations. This is a matter of fact that cannot be disputed.”
“The agreements the Trustee complains about were approved by the Genius Board and its shareholders before The Weinstein Company ever had any business dealings or interest in Genius. This is reflected in the public SEC Proxy Statement Genius filed in 2006 (read it here) in which it explained to its shareholders that the very same agreements that the Trustee now challenges, many years later, were in the best interest of the Company. Not only did the Genius Board feel that way, but also its investment advisor, Jefferies & Company, did. Jefferies issued its opinion that the transactions that the Trustee is now challenging were fair from a financial point of view.
“The reality is that Genius’s distribution of TWC product was responsible for the lion’s share of all revenue that Genius received but Genius still failed to pay to TWC tens of millions of dollars due under the distribution agreements that TWC wrote off. Further, Genius was controlled by the Quadrant Group, which is completely independent from TWC, beginning in January 2009, which was nearly three years before Genius’s bankruptcy.”
“After bleeding millions for over two years, Genius ran out of dough in 2008 and was taken over by Quadrant the next year. Later in 2009, the company ceased operation as its distribution rights assets were sold to Vivendi Entertainment. Even with having put home video products from the likes of ESPN and Sesame Street Workshop in big box stores, Genius went under in 2001 with almost $9 million in debt. This filing from trustee Siegel basically says that TWC’s alleged plundering of the place made Genius and others into unsecured creditors. The next question is what will the judge say here.”