Stockholders v Jakks Pacific, Inc.
Investors of Toy Company Sue When Professional Wrestling Contract Goes South
A class action has been filed in the Southern District Court of New York against Jakks Pacific, Inc. (NYSE: JAKK), a California based toy company and certain of its officers and directors by stockholders who purchased the company's common stock between October 26, 1999 and October 19, 2004. The action claims that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.
Specifically, the Complaint alleges that defendants' statements were each materially false and misleading because they failed to disclose and misrepresented the following facts:
(a) The Company had obtained the WWE (World Wrestling Entertainment) license as a result of its participation in an illicit bribery scheme;
(b) The Company's success in obtaining at least one lucrative license was not reflective of the Company's ability to enter into licensing agreements through arms-length transactions but was, instead, reflective of the Company's perpetration of an unsustainable business tactic;
(c) discovery of the Company's participation in the bribery scheme would substantially impact the Company's past, present and future revenue stream from the WWE license as the terms of the license could be materially modified, or revoked in its entirety, and the Company would be exposed to significant liability in the form of damages sought by WWE;
(d) The Company's viability as an ongoing business operation would be materially impacted by potential business partners' reluctance to conduct business with an entity involved in such a bribery scheme; and
(e) The Company's revenues and earnings would have been significantly less had the Company not engaged in the bribery scheme.
News of the announcement that the WWE filed a lawsuit against Jakks caused the company's stock to drop 23 percent.
