Judge: Shareholders fail to show Midway Games execs hid financial condition

A federal court judge has ruled in favor of former top executives at the defunct Midway Games, the Chicago-based owner of the Mortal Kombat videogame franchise, whom certain shareholders had alleged deceived the public about Midway Games’ financial condition.

U.S. District Court Judge David H. Coar ruled in an order released Monday that the aggrieved shareholders, who lost millions in their investments in the company, failed to make their case that the executives knowingly kept the investing public in the dark while the executives sold their shares and made millions. The exonerated executives are former CEO David Zucker; Thomas Powell, chief financial officer; Steven Allison, chief marketing officer; James Boyle, controller, and Miguel Iribarren, senior vice president, publishing.

The shareholders failed to show that the executives “said or did anything more than publicly adopt a hopeful posture that its strategic plans would pay off,” the judge’s order states, referring to Midway Games’ optimistic assessments after it acquired Australian videogame developer Ratbag Holdings. “Such preening for the financial press is classic puffery,” the order said.

The judge noted that Viacom CEO Sumner Redstone’s interest in Midway Games drove up the stock, and Redstone’s subsequent announcement in December 2008 that he wasn’t interested caused the stock to plunge.

The judge also ruled that the stockholders had not “adequately alleged the direct liability” of any of the executives, who were represented in the case by David H. Kistenbroker of Chicago law firm Katten Muchin Rosenman.

Midway Games filed for Chapter 11 bankruptcy protection in February 2009, listing assets of $168 million and debt of $281 million.

Midway Games sold its assets in July for $33 million plus accounts receivable to Warner Bros. Entertainment Inc., a subsidiary of Time Warner Inc., and shuttered its Chicago headquarters shortly afterward.