Former employees of Factor 5 Inc. have sued the bankrupt studio over allegations that it engaged in fraudulent behavior in order to avoid paying them.

Factor 5 declared Chapter 7 bankruptcy in May, claiming $50,000 to $100,000 in assets and $1 million to $10 million in debt. The company ran into trouble when Brash Entertainment, with which it had signed a publishing deal, fell victim to its own financial difficulties and went under, which ended funding for Factor 5’s project and eventually forced it to close down as well. The company stopped paying employees on November 1, 2008, the lawsuit claims, and then “abruptly” laid everyone off on December 19.

The suit alleges that prior to the bankruptcy, the founders of Factor 5 created a new company called Blue Harvest, to which they “fraudulently transferred assets, including source code and other intellectual property,” including a partially-completed version of Star Wars: Rogue Squadron for the Wii. Blue Harvest was the fake title for the third Star Wars film, Return of the Jedi, used to keep the development of the film a secret; the company has since been renamed to White Harvest, a change that attorney James Smith, an attorney representing the employees, said might have been motivated by the close association of Blue Harvest with Lucasfilm and Star Wars.

“We believe and have alleged in the complaint that Factor 5 and White Harvest are essentially the same company, being run by the same people, being represented by the same sets of lawyers, with all the same management and ownership and control, performing all the same work that they were doing at Factor 5, just now with a new name and a new address,” Smith said.

He also pointed out that Factor 5 management had taken other steps to shield assets: CEO Julian Eggebrecht transferred his share of a house to Intel Director of Business Development Katja Reitemeyer, with whom he shared the title, for $5000; the house has an assessed value of $548,000.

Source: Marin Independent Journal

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