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Entertainment Law & FinanceFeaturesEntertainment and Sports LawLitigation

Shareholders' Suit Over Video Game Developer's IPO

By Ellen Bardash
March 01, 2021

Two former shareholders allege in federal court that an auto-racing video game creator swindled them out of more than $200 million in stock. In a complaint filed last month in the U.S. District Court for the District of Delaware, HC2 Holdings 2 Inc. and Continental General Insurance Co. allege majority shareholder Motorsport Games Inc. portrayed 704Games Co. as being unprofitable and bought out their shares for $1.2 million, then months later went public with shares trading at more than 170 times that buyout value. The latter company developed video games based on NASCAR racing. HC2 Holdings 2 Inc. v. Motorsport Games Inc., 1:21-cv-00165.

The plaintiffs claim Motorsport Games and executives intentionally defrauded their investors in order to buy out their stock for much less than they knew it would be worth when the shares were publicly traded. "Motorsport Games abused its fiduciary position as controlling stockholder in 704Games to defraud minority investors and enrich itself by grossly misleading them about the company's near-term prospects," an HC2 Holdings 2 spokesperson said.

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