The bankruptcy trustee for Genius Products is suing The Weinstein Co., contending that Genius was forced into onerous agreements so favorable to Weinstein that it left other creditors out in the cold.
The lawsuit, filed in U.S. Bankruptcy Court in Los Angeles by trustee Alfred Siegel, contends that while Genius was structured as an independent company in 2006 with independent management, that was a “sham that was intended to and did mislead third parties.”
In fact, the suit contends, Weinstein exercised “ultimate control” over Genius’ business decisions to TWC’s benefit, and treated Genius as an “operating division.”
Alan R. Friedman of Fox Rothschild, representing The Weinstein Co., challenged the lawsuit’s claims. He said that the distribution agreements were approved by the independent board, disclosed to shareholders and approved by them, and deemed fair by a Jefferies & Co. opinion.
“This was a good deal that didn’t work out in the way that everyone thought it would work out,” he said, noting that TWC had to write off “tens of millions of dollars” from the transaction. It also coincided with the decline of the homevideo sell-through business.
Genius went into involuntary bankruptcy in 2012 after a petition was filed by World Wrestling Entertainment, Thought Equity Motion and LD Entertainment. They claimed almost $9 million in debts.
Siegel claims that Genius’ terms of distribution agreements with Weinstein were one-sided. For example, while a market distribution fee for an independent home video distributor of titles in the Weinstein library would be in the range of 15% to 17.5% of net receipts, Genius was only entitled to 5%, according to the lawsuit.
Friedman, however, said that the Jefferies & Co. opinion specifically referred to the 5% distribution figure.
The lawsuit claims that, from Dec. 27, 2007 onward, Genius transferred more than $130 million to TWC under the various obligations spelled out in the agreements. Among other things, the lawsuit contends that the transfers were fraudulent and is seeking recovery.