The recent court case against Gearbox CEO Randy Pitchford has taken an interesting turn.
New documents filed by Wade Callender, a former Gearbox corporate counsel who is suing Pitchford over charges of embezzlement, has provided evidence that Pitchford has diverted funds from Gearbox into a personal company.
New documents in the suit filed by Wade Callender, former Gearbox corporate counsel, against Randy Pitchford back up a claim that Pitchford diverted studio money to a personal company.
On June 12th, Callender’s legal team submitted a 76-page filing that includes an amendment to the Borderlands 3 contract between Gearbox and 2K – dated November 29th, 2016 – that references $12 million, along with $3 million for remaining Gearbox co-founder and chief financial officer Stephen Bahl. The amendment included a clause titled “Bonus for satisfaction of dedicated executive requirement,” which stated that the developer – in this case, Gearbox as defined by the contract -is eligible for a “recoupable” $15 million bonus.
This means that publisher 2K Games would pay out an extra $15 million to Gearbox, split into three payments of $5 million, to Pitchford and Bahl. The clause itself is tied to three major development milestones, along with “attentions toward the development and success of Borderlands 3.” The bonus was also part of 2K’s overall funding of Borderlands 3’s development, and must be paid back through royalties after the game ships, hence recoupable.
In the documents by Callender, he showcased an amendment to the “Bonus for satisfaction of dedicated executive requirement” clause, added March 1st of 2017, that authorized 2K Games to divert Pitchford’s $12 million bonus specifically to his personal company, Pitchford Entertainment, Media and Magic. The document also bears signatures from 2K and Gearbox representatives.
Callender has accused Pitchford of “violating his legal duties” towards Gearbox, including accusations of embezzlement, after Pitchford sued Callender for the misuse of company credit cards for personal expenses, including the destruction of evidence.
Due to Pitchford and Bahl being specifically named in the clause, it is possible for Pitchford to make the claim that he earned those funds directly from 2K. GameDaily, in correspondence with attorney Richard Hoeg of the Hoeg Law Firm, analyzed the entire section provided by Callender and came up with several conclusions of their own, noting a major sticking point is Pitchford’s 50% ownership of Gearbox and 51% operational control, with the rest controlled by Bahl.
“It was likely Randy negotiating the agreement directly, so that brings up its own concerns, especially if the plan was always for Randy to receive this $12 million,” Hoeg continued. “In fact, if he weren’t in functional control of the company, I wouldn’t doubt that if such a provision were in an agreement of this type, that he could go to his board and CEO and say, I deserve a portion—or perhaps even all—of such bonus amount. The issue is that he is in control of the company, and I’m not sure they went through the proper corporate processes to ‘cleanse’ any such decision to divert the funds to his magic company. Such a cleansing action would ordinarily take place through the approval of “disinterested” directors and/or stockholders. In other words, if the folks that are not directly benefiting from the contract or payment approve of it, generally, the law is going to be okay with it. It’s the kind of thing a general counsel would recommend.”
Pitchford has been in the crosshairs for a while now, including a public spat with David Eddings, the former voice of Claptrap in Borderlands, who vacated the role over a pay dispute after leaving Gearbox. Eddings has also publicly opined that he believes the embezzlement allegations are true.
Take-Two Interactive, the parent company of 2K Games, has expressed their support for Pitchford at this time despite the new allegations being proven by Callender. CEO Strauss Zelnick stated to Forbes that “Gearbox has been outspoken in responding to and denying the allegations, and there’s an ongoing legal process, and we’re people who have our eyes wide open. And we support Gearbox in this situation.”
It is unclear if the new evidence by Callender will lead to further legal action against Pitchford, who last week was on a high over the praise of Borderlands 3, which was shown at E3 this year and is scheduled for release this September.
A jury trial is scheduled for January 7th, 2020.
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