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Wade Callender, former executive counsel for Gearbox Software, has presented new evidence in an ongoing dispute alleging Randy Pitchford (President and CEO of Gearbox Software) had misappropriated company funds.
In late 2018, Pitchford sued Callender over claims that he had used company credit cards for personal expenses and destroyed evidence that the studio funded a home loan. Callender countersued in December of that year, making the accusation that Pitchford had left a USB drive containing corporate documents and disturbing pornography at a Medieval Times Restaurant.
The accusations Callender made in a suit in January 2019 included the claim that Pitchford had funneled $12 million from the studio; intended to be bonuses based on work for Borderlands, to his personal company “Pitchford Entertainment Media & Magic.”
Speaking with Kotaku, a Gearbox representative stated “The allegations made by a disgruntled former employee are absurd, with no basis in reality or law. We look forward to addressing this meritless lawsuit in court and have no further comment at this time.”
On June 12th 2019, a new 76 page filing was submitted by Callender’s attorneys. You can find this document here via Scribd. This filing now includes an amendment to an alleged Borderlands 3 contract from November 29th 2016 between Gearbox and publisher 2K Games. It references the allegedly funneled $12 million, and an additional $3 million for Stephen Bahl- Gearbox co-founder and chief financial officer.
The contract amendment allegedly included a clause titled “Bonus for satisfaction of dedicated executive requirement.” This means the Developer (Gearbox) is eligible for a “recoupable” $15 million bonus to Pitchford and Bahl. “Recoupable” here means that the bonus was considered part of 2K’s funding of Borderlands 3. As with most publisher expenses, it would be paid back via royalties from the company once the game shipped.
The $15 million would then be split into three payments, each based on a different development milestones- including creating a final release to master (i.e. going gold), that Pitchford and Bahl gave “attentions toward the development and success of” Borderlands 3, and working 30 hours per week.
While Callender’s original complaint alleged a misappropriation of funds, his recent amendment now provides both the original contact clause and an amendment to the “Bonus for satisfaction of dedicated executive requirement” clause.
The March 1st 2017 amendment allegedly authorized 2K Games to divert Pitchford’s $12 million recoupable bonus to Pitchford Entertainment Media & Magic. While the document is redacted, it does have signatures from both Gearbox and 2K representatives.
As noted on pages 13 and 14 of the filing:
“Things grew progressively worse as Pitchford insisted upon placing his personal interests above the interests of Gearbox and its personnel. In November 2016, Pitchford belatedly informed Callender that Randy had privately reached a “side-deal” with Take 2 Interactive/2KGames, the Publisher of Gearbox’s Borderlands franchise. This deal — which Pitchford insisted upon concealing — afforded Pitchford a personal and secretive bonus of $12,000,000 to be paid directly to a Pitchford entity called “Pitchford Entertainment Media & Magic, LLC.” Because Pitchford agreed that the publisher’s recoupable “payments to Pitchford Entertainment, Media &Magic…will constitute payments to Gearbox,” will be recouped by any royalties owed to Gearbox employees, those employees — and their families — won’t receive any of their accrued royalty or “profit” shares until their work repays (i.e., “recoups”) Pitchford’s bonuses to the publisher. This is a particularly tragic exploitation, because these millions are being siphoned to Pitchford’s personal accounts instead of funding the development — or talented employees — behind Borderlands.”
If the above is true, that means Callender’s claims of misappropriated funds could have a legitimate basis. Speaking with GameDaily.Biz, Richard Hoeg of The Hoeg Law Firm explains how the issue may not be so cut and dry thanks to Pitchford and Bahl being named in the clause:
“If the royalty were just owed to Gearbox on the whole and then Randy diverted it, it would look very much like stealing. As an officer or director you owe a duty to protect the assets of the company. That’s usually divided into a duty of loyalty and a duty of care. Here the duty of loyalty is very much implicated, as one could argue—as they are in fact arguing—that Randy took a business opportunity directly out of the hands of the company he owes this duty towards.”
[…] “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. 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.”
Other accusations include “Documents show that Pitchford has become so desperate to injure Callender that Pitchford and his counsel have aligned themselves, behind-the-scenes, with Callender’s physically abusive father,” denying employee raises, and that this is “this is the tip of the iceberg.”
Pitchford’s attorneys have filed a motion to enforce a protective order to protect confidential documents between Gearbox and 2K Games. While both parties agreed to such protections before, the motion has been denied. This was due to Callender’s counsel explaining that the documents were not part of a discovery, and therefore could not be under the protective order.
A jury trial is set for January 7th 2020, though a settlement may be reached in that time. We will keep you updated as this story develops.