PHOENIX (CN) - After spending "tens of millions of dollars" to develop a video game, the developer fraudulently transferred assets in bankruptcy and bought it all for only $100,000, shareholders say in a derivative complaint. The conspiracy complaint involves a multiplayer online role-playing game based on the "Stargate" TV and movie series.
Shareholders claim in Maricopa County Court, that Cheyenne Mountain Entertainment "raised and expended tens of millions of dollars in connection with the development of Stargate Resistance and Stargate Worlds."
Cheyenne Mountain is not named as a defendant. The defendants are Dark Comet Games, Fresh Start Studios, and five people: Karl Hiatt and his wife (first name unknown), Mark Renberg, Chris Lombardo, and Harlan James Brown II.
According to the 39-page complaint, Cheyenne Mountain Entertainment filed for bankruptcy on Feb. 12. During bankruptcy proceedings, it "could not dispose of any of the assets in the debtor's estate without approval of the bankruptcy court."
But on Feb. 24, Fresh Start Studios tried to remove all the Cheyenne Mountain Entertainment assets from its offices. It failed because police were called, the complaint states.
Timothy Jenson, Cheyenne Mountain's former president, then allegedly began to negotiate transferring the assets to Fresh Start Studios, though no "approval was sought or obtained from the bankruptcy court permitting CME to dispose of ... all of the assets of CME's subsidiaries."
Fresh Start Studios allegedly paid only $100,000 to purchase all of Cheyenne Mountain's assets, a fraction of 1 percent of the assets' worth, the shareholders say.
The plaintiffs say that Fresh Start knew that "there was a substantial risk that the validity of that agreement would be subject to a legal challenge because of CME's bankruptcy, the lack of approval by the appropriate shareholders, the lack of approval by the boards of CME or CMG, the lack of any authorizing resolution, and the lack of any signature by the president of CME or CMG."
On June 8, the receiver assigned to Cheyenne Mountain during bankruptcy met with the three plaintiff shareholders to notify them that the company's assets had been transferred to Fresh Start, and that Cheyenne Mountain now "lacked any reasonable means or prospect of internally generating revenues."
The receiver "acknowledged to derivative plaintiffs that the transfer of the Cheyenne entities' assets ... was improper" and said he notified Fresh Start to "either return them voluntarily or litigation should be undertaken to force the return of those assets," according to the complaint.
Since May 2010, plaintiffs say they "have repeatedly sought, through the receiver, to have the joint venture agreement voided and declared ineffective and to have the assets of the Cheyenne entities returned."
The receiver refused, and asked to be dismissed from the proceedings after plaintiffs refused to pay him $2 million to take legal action against Fresh Start, according to the complaint.
Defendant Renberg is the registered agent for both Dark Comet and Fresh Start, which operate out of the same address. Plaintiffs seek a declaration that the transfer of assets to Fresh Start is fraudulent, and want the assets returned Cheyenne Mountain Games. They also want $10 million in damages, alleging breach of contract, civil conspiracy, fraudulent transfer, tortious interference and unjust enrichment. Their lead counsel is Mark Deatherage with Gallagher and Kennedy.