log in or register to remove this ad

 

CDPR Sued For Securities Violations

embee

Lawyer by day. Rules lawyer by night.
And now, the water having been chummed, a class action lawsuit has been filed in the US District Court for the Central District of California, alleging violations of the Securities Act of 1934 arising out of alleged material misrepresentations about the playability of Cyberpunk 2077, in turn ultimately leading to damages caused when the company's stock price declined precipitously surrounding performance issues on current-gen consoles.

Possibly notably, this lawsuit appears to be styled as a class action and not a shareholder derivative action brought on behalf of the corporation.
 

log in or register to remove this ad

Eltab

Is this a moon, or is it a space station?
The folks filing the lawsuit are in effect inviting disappointed players (or would-be players) of the game to join in the suit?
 

Ryujin

Adventurer
People who purchased the game wouldn't have standing to join the class, given the reasoning behind the suit. They didn't buy stock. They bought a product and weren't materially harmed by the drop in stock price.

"This is a class action on behalf of persons or entities who purchased or otherwise acquired publicly traded CD Projektsecurities betweenJanuary 16, 2020and December 17, 2020, inclusive (the “Class Period”)."

So this is a suit, against the company and its principals, for actions that resulted in material loss to shareholders. Company pushed for release and got money. Shareholders may get money from the company. Developers, who were dragged by the nuts in order to complete the game for release in whatever form it ultimate made it to, got paid whatever pittance over-stressed, overworked developers get these days. Customers get a flawed product.
 

Morrus

Well, that was fun
Staff member
I know next to nothing about stock trading, but if the shareholders sue the company, aren't they suing themselves? If the company has to pay them money, aren't they paying themselves money?
 

Ryujin

Adventurer
I know next to nothing about stock trading, but if the shareholders sue the company, aren't they suing themselves? If the company has to pay them money, aren't they paying themselves money?
Yes and no. They are shareholders but they get dividends on their investment, or sell the shares and cash out to make a profit on the initial investment. All profits do not go to shareholders. They're suing against those company retained profits to recover what they claim has been lost, in the value of their stocks, because on company misfeasance/malfeasance. What I don't know is how that loss can be quantified if those investors don't actually cash out their stocks. The losses would seem to be speculative until they do so. The value of the stock could bounce back.
 

embee

Lawyer by day. Rules lawyer by night.
I know next to nothing about stock trading, but if the shareholders sue the company, aren't they suing themselves? If the company has to pay them money, aren't they paying themselves money?
I know next to nothing about corporate law or corporate litigation.

That said, a shareholder derivative suit (which this is not) is brought by a shareholder of a corporation for the benefit of the corporation. A shareholder’s class action lawsuit is brought by a shareholder for the benefit of themselves and the other shareholders. The practical difference is that in a derivative suit, any damages awarded are paid to the corporation; in a shareholder class action, the damages go to the class (the shareholder's).

So why do one instead of the other?

A derivative suit is usually brought to cure waste or self-dealing. Let's say the Board or portion thereof engaged in self-dealing. Well, the only way to hurt a corporation is through its wallet. So, to the extent there was monetary damage for, say, selling an asset at a below market price, the derivative suit could seek the shortfall and the award would go to the corporation.

Here, the claim (as I understand it) is that the Board made material misrepresentations about the completeness and playability of Cyberpunk during an October conference call, representing that the game was complete and playable across all advertised platforms, current-gen consoles included. This led to some investors either retaining their shares or increasing their position and the ensuing revelation that the game was buggy and performed poorly on current-gen consoles caused a precipitous decline in the traded share price following news reports, thereby injuring the shareholders monetarily.

I make no representations as to the viability of this claim or any tactical or negotiation value such claims have, other than to say it's a newly filed action, the defendants still have time to interpose an Answer or file motions to dismiss, and the class still has to be certified.
 

Morrus

Well, that was fun
Staff member
I still don't get it! If you as a shareholder sue the company, and the company has to pay you money, the value of the company goes down, so your shares are now worth less, surely? You've just sued yourself, effectively.

Eh. I know. I'm about as clueless as can be with stuff like that. I'm sure it makes sense to people who know how it works.
 

shawnhcorey

Explorer
So why don't the shareholders fire the board of directors and hire ones that will do what they want? Isn't that how capitalism suppose to work?
 

embee

Lawyer by day. Rules lawyer by night.
So why don't the shareholders fire the board of directors and hire ones that will do what they want? Isn't that how capitalism suppose to work?
They may not be able to.

The process for changing the board of directors is generally contained in the corporation's bylaws, which are the written rules of conduct for the corporation.

Directors serve for a term. In order to end it early, generally, there needs to be a special shareholder meeting and there must be a quorum of voting shareholders present. This is 50% unless the by-laws say otherwise. And then, you need a majority of those present voting in favor of removal.

So you need at minimum 25% of the voting shares to vote to replace.

Why "voting" shares? Not all shares are created equal. There may be different share classes and not all classes may be voting (entitled to vote). They have equity only, not control. CDPR appears to only have one class. But...

25% of the shares are held by the founders. The CFO (who is also a Board member) owns another 6.8%. This leaves about 66% remaining. If only the founders and Board members who own stock vote at the meeting, the vote will fail. My math fails me but, as said, a majority of those present need to vote.

Corporations are not evil; they are, however, amoral. The best you can hope for is a corporation to act out of enlightened self-interest.
 

embee

Lawyer by day. Rules lawyer by night.
I still don't get it! If you as a shareholder sue the company, and the company has to pay you money, the value of the company goes down, so your shares are now worth less, surely? You've just sued yourself, effectively.

Eh. I know. I'm about as clueless as can be with stuff like that. I'm sure it makes sense to people who know how it works.
You assume that you, as a shareholder, are only interested in selling at the maximum amount at any given point in time.

You may be interested in increasing your position now that the share price is lower, increasing your equity in the company at a lower cost. This is known as "buying on bad news." The trick is knowing whether there is an acute problem that can (and hopefully will) be fixed or the problem is systemic.

Example 1: Buying shares of airline stocks after news of pandemic travel bans. Airline stocks plummeted in mid-February, and lost 2/3 of their share price in the next 30 days. One would buy on the bad news - while the price is plummeting - because airlines are a major part of the global economy and world governments have a vested interest in bailing them out to ensure travel continues. It's an acute problem.

Example 2: Buying shares of department store companies (like Macy's). The clothing retail sector has completely changed over the past decade. Macy's was trading at $70 in 2015. It's at $10 now. Times changed and brick and mortar is on a decline, evidenced by a parade of retail bankruptcies. That's a systemic problem.

So that's the trick...

Bringing it all back, what do you do with movie theatre companies like AMC, Regal, and Carmike?

Sure, people want to go to the movies. But can a movie theatre chain remain solvent? Solvent is a term that means "able to meet liabilities as they come due." These companies owe tons in rent and mortgage arrearage and don't know when they'll be able to generate any revenue. And when they do generate revenue, WB and Disney automatically take half of what comes in.

Is their problem acute or systemic?

Welcome to the world of high finance!
 

shawnhcorey

Explorer
Is their problem acute or systemic?

As strange usage of the word systemic. I did not know systemic meant the natural end of its lifetime. The natural end of a lifetime would not be brought on by the system. Sooner or later everything ends, regardless of the system.
 

embee

Lawyer by day. Rules lawyer by night.
As strange usage of the word systemic. I did not know systemic meant the natural end of its lifetime. The natural end of a lifetime would not be brought on by the system. Sooner or later everything ends, regardless of the system.
Corporations don't have lifespans. They are legal entities that only exist by dint of law and will continue on for as long as they are solvent. JP Morgan Chase, DuPont, and Remington are all over 200 years old. Nintendo is over 125 years old and originally sold cards.

Corporations die of insolvency, not old age.
 

shawnhcorey

Explorer
Corporations may not have lifespans but technology does. Theatres are losing out to streaming services because its the end of their technology.

Think of it like species. When one species is replaced another, it's the end of lifespan because it can no longer complete. Same with technology.
 

embee

Lawyer by day. Rules lawyer by night.
Corporations may not have lifespans but technology does. Theatres are losing out to streaming services because its the end of their technology.

Think of it like species. When one species is replaced another, it's the end of lifespan because it can no longer complete. Same with technology.
Theaters are losing out to streaming technology because they spent the last two decades spending on capital improvements.

In 1999, they switched to digital projection pursuant to George Lucas' demand to do so in order to be eligible to exhibit The Phantom Menace. Then there were continual upgrades to sound to maintain THX certification, expenditures to install a mini-IMAX screen, FreeStyle soda machines, and renovations for installation of improved stadium seating, not to mention infrastructure improvements to allow eTicketing.

This also involved paying out fees to Fandango and other third-party ticket sellers (they get a cut of the exhibitors' cut), and losing revenue due to studio-favoring shifts in the revenue (again, starting with The Phantom Menace and which Disney has started using again, beginning with The Last Jedi). Disney didn't get 50% of that movie. It got 65%.

On top of this, the operating costs kept growing. Rent, payroll, maintenance, electricity. In the best of times, exhibitors had about a 4% profit margin.

Now, take that optimal environment where the exhibitor turns a 4% profit and turn off the revenue stream. No income for 9 months. They still owe rent. They still have to maintain equipment. But they don't take money in.

I'm not saying they were doing well. Movie theaters are in the same situation as coal mines. Their decline really began around the time that Disney and WB started laying down the new 65% split. And COVID put a bullet in the heads of the theater chains. Streaming is the studios' solution to COVID in an attempt to recoup their investment. And yes, that will quite possibly kill movie theaters. AMC is likely to run out of operating cash in the next few months. Regal might not see 2022.

But streaming isn't killing theaters - COVID and studio consolidation are.
 

shawnhcorey

Explorer
COVID, as I understand the term from above, is an acute problem. Eventually it will go away. And yes, businesses can go bankrupt because of acute problems.

Studio consolidation is a monopoly problem. If the studios didn't want to promote streaming over theatres, they would not have demanded 65% of the revenue. Back before the internet, theatre chains had a tight grip of movies. (They didn't quite have a monopoly.) But technology has changed that and they are suffering for it.

But I would not call this a systemic problem. This is expected behaviour within the system, not a problem caused by the system.
 

Ryujin

Adventurer
I still don't get it! If you as a shareholder sue the company, and the company has to pay you money, the value of the company goes down, so your shares are now worth less, surely? You've just sued yourself, effectively.

Eh. I know. I'm about as clueless as can be with stuff like that. I'm sure it makes sense to people who know how it works.
So you enrich yourself, personally, at the cost of the company. Hopefully the company's overall assets outweigh the amount of equity held by stock holders, by a large margin. If all that you're looking for is a top-up and to divest yourself of the stock completely, then you don't really care what happens to the company afterward. And some (far too many) people refuse to think long term and are only about realizing profit, today.
 

dragoner

Dying in Chargen
This sounds like it is brought by investors to recoup losses, either from the company, brokerage, or a tax write off. Not my purview, though I am usually named in lawsuits 3-4 times a year, it's just the way business is done, and why people retain lawyers.
 

Ryujin

Adventurer
This sounds like it is brought by investors to recoup losses, either from the company, brokerage, or a tax write off. Not my purview, though I am usually named in lawsuits 3-4 times a year, it's just the way business is done, and why people retain lawyers.
So far by an investor, who wants to have a class certified.
 
Last edited:

embee

Lawyer by day. Rules lawyer by night.
COVID, as I understand the term from above, is an acute problem. Eventually it will go away. And yes, businesses can go bankrupt because of acute problems.

Studio consolidation is a monopoly problem. If the studios didn't want to promote streaming over theatres, they would not have demanded 65% of the revenue. Back before the internet, theatre chains had a tight grip of movies. (They didn't quite have a monopoly.) But technology has changed that and they are suffering for it.

But I would not call this a systemic problem. This is expected behaviour within the system, not a problem caused by the system.
I feel that we are speaking past each other when it comes to language.

Let's look at something like Uber.

If an Uber driver assaults a passenger, resulting in bad press and ensuing decline in revenues and share price, that is an acute problem. It is a relatively isolated problem.

If Uber has a toxic corporate culture that exposes it to workplace liability, that too may be an acute problem that can be fixed through management changes. If such changes do not fix the problem, that problem may become a systemic problem.

Additionally, if Uber's business model relies on paying its drivers under an "independent contractor" model as opposed to as a "W2 employee" and a jurisdiction determines through statute or court ruling that the drivers are W2 employees, that's also a systemic problem. The company cannot function within that system.

_____________________________________________________________________

And the studios didn't want to promote streaming because of ease of piracy. Transmission of files to exhibitors is far more secure. Why the 65% squeeze play? Because if an exhibitor doesn't have Disney movies, it doesn't have movies. It doesn't have Marvel. It doesn't have Star Wars. It doesn't have Pixar. It doesn't have Disney. Disney had the advantage, not the exhibitors. And if AMC, Regal, and Carmike all got together to strategize how to counter, that could run afoul of anti-collusion laws. And none of them alone are big enough to fight back.

Yeah - sucks to not have a monopoly.

As for streaming, well, how much do they make? No one knows. There have only really been two examples: Mulan and Wonder Woman 84. Disney CEO gave no figures on performance during the November earnings call, saying only that he was "pleased" with Mulan's performance. The next experiment is Soul, which won't be in an earnings call until Q2 at least.

Ultimately, theaters have several problem. The acute problem of COVID and how to remain solvent with crippled income. There is also a systemic problem with how to remain solvent with rising costs and lower returns due to studio consolidation. And there is a second systemic problem with whether, due to technology, theaters can generate sufficient demand for their product - the theater experience.

People may line up around the block in July and December to see the Avengers and the Star Wars gang but the theater still needs to pay the rent all the other months of the year.

Bottom line: I think we agree. Movie theaters may not survive. I think we disagree on the cause of potential death.
 


Advertisement2

Advertisement4

Top