PORT ST. LUCIE, Fla. -- Digital Domain Media Group executives of lying about the company's shaky financial condition at the time of its initial public stock offering.
Court papers allege in multiple counts against company officials and public offering underwriters that they misrepresented and omitted important information shareholders relied upon to purchase stock during an initial public offering held Nov. 18, 2011.
Plaintiff Frank Cacella heads a class of shareholders suing John Textor, former Digital Domain CEO and board chairman; Jonathan Teaford, former president, CFO and Digital Domain Institute CEO; Roth Capital Partners, the lead underwriter; and Morgan Joseph Triartisan, managing underwriter. In separate suits, plaintiffs Nathan Wilson and Mark St. Cyr each head a class of shareholders suing Textor, Teaford, Roth, Morgan and CFO John Nichols.
All the key players either declined to comment on the details of the suit or could not be reached for comment Thursday.
"It is unfortunate that lawsuits can be filed based on erroneous reports and speculation," Textor said when reached Thursday. "We know the truthfulness of our public statements will be proven in time. We really believed we were building something special in the community. My focus now is on doing everything we can to reestablish what we started."
The court documents detail Digital Domain's demise before the initial public offering and through the bankruptcy filing. Throughout that period, Textor misrepresented the company's financial health in news releases and investor conferences, the suits say. During a Dec. 20, 2011, conference call, Textor reassured investors the company was not threatened by an excessive burn rate, court documents say.
In a Dec. 20, 2011, company news release, Textor said the company's revenue backlog of 2012-13 film projects, combined with the company's recently announced strategic and technology-based initiatives, provide the company with "a positive outlook and strong visibility well into 2013."
"While our growth appetite is aggressive, we have mitigated the financial risk of such growth through a unique funding model that relies on public and private partnerships," Textor wrote. "We have also mitigated the risk of execution by choosing great partners, such as Reliance Media in India, Galloping Horse in China and the Florida State University."
On May 16, 2012, Textor again touted the company's first quarter results in a news release, reporting the company had "beat revenue and earnings estimates" and further stated, "We have also used substantial grant funding from government relationships to mitigate risk of our business expansion and associated launch expanses."
On Aug. 1, Digital Domain issued a news release announcing the company planned to re-evaluate a broad range of strategic and financial alternatives to support the company's growth initiatives and its efforts to maximize shareholder value. That same day, the company's shares closed down 2.3 percent to close at $4.14 per share.
In an Aug. 14 SEC filing, Digital Domain reported a deficit in working capital of $42.8 million but stated revenues from the company's visual effects and animation services contracts, refinancing of debt and co-production arrangements for animation feature film projects would allow the company to "have sufficient sources of cash to support our operations in 2012."
In a Sept. 4 SEC filing, Digital Domain disclosed the company had violated a loan covenant requiring the company to maintain certain minimum levels of cash and was in crisis and had significant liquidity issues, which threatened its ability to continue. Digital Domain sold 4.92 million shares of its common stock at the initial public offering price of $8.50 per share. The gross proceeds received in the offering totaled $41.8 million. Digital Domain raised about $38.4 million in net proceeds after deducting underwriting discounts and commissions of about $2.9 million then unpaid offering expenses of about half a million, according to the suits. When Digital Domain closed Tradition Studios Sept. 7, its shares fell 38 percent to close at 6 cents per share on heavy volume.
All three lawsuits, filed in federal court in the U.S. Southern District of Florida, are seeking class action status, which a judge must approve. The suits, which could represent thousands of shareholders, seek monetary and recissiory damages; the latter could include awarding the plaintiffs the monetary value of the stock purchased by shareholders.
Teaford and Nichols could not be reached for comment.
Attorneys for Cacella and Wilson also could not be reached for comment Thursday. A spokesman for St. Cyr's attorney said he declined to comment.
Digital Domain received government incentives totaling $135 million from the state, Port St. Lucie and West Palm Beach.
All three lawsuits allege much of the same wrongdoing leading up to the initial public offering, including:
Initial public offering