The lawsuit, which also names Thomas and Redstone’s daughter Shari, is the result of “a series of disastrous and ill-advised financial transactions that largely occurred during 2008” which were either approved of or ignored by the company’s board of directors “to the detriment of Midway.” Redstone sold his 87 percent stake in the company to Thomas, who also took on $70 million in debt as part of the deal, in November 2008; Midway declared bankruptcy in February 2009 because it could not fulfill financial obligations to its creditors that were triggered by the deal.
Midway’s creditors claim the company’s sale generated over $700 million in tax losses for Redstone, resulting in a “massive tax refund” for him while Midway itself got nothing. Further, the suit complains that Thomas is not “an appropriate owner” for Midway, as he has no background in the games industry and no assets to invest in it.
The Midway deal has attracted an unwelcome level of scrutiny and in March Redstone and his daughter were subpoenaed by U.S. Bankruptcy Court over allegations of insider trading. Much of the fishiness centers on Thomas, a virtually unknown figure who was granted preferred debt in the deal that could see him earn as much as $30 million on his investment.
The suit also alleges fraudulent transfer between Redstone and Thomas, unjust enrichment, corporate waste and breach of fiduciary duty against Redstone and the Midway board. The creditors want the court to declare the transfer fraudulent and are seeking compensatory and punitive damages as well as the “recharacterization” of $90 million Redstone invested into the company in February 2008 from debt to equity.