8:43am PT by Eriq Gardner
Judge Asked to Freeze Weinstein Co. Assets
The Weinstein Company is getting squeezed. As the embattled studio hunts for financial salvation in the wake of bombshell reports about Harvey Weinstein's alleged sexual misconduct towards dozens of women, a judge is now being asked to restrain the company from selling off any assets.
The move comes from Alfred Siegel, the Chapter 7 Trustee of Genius Products, which was once chaired by Steve Bannon and owned by an investment group led by President Donald Trump's former chief strategist.
Genius was a distributor in the home entertainment market, as well as a former subsidiary of TWC. After Bannon acquired the company, he saw the Weinsteins as his opportunity to grow his new business.
Things didn't go quite as planned. After Genius was forced into bankruptcy by World Wrestling Entertainment in 2011, Siegel has pursued a $130 million lawsuit against TWC. The lawsuit accuses TWC of essentially treating Bannon's old company as its piggy bank. According to Siegel, Genius was forced into an "onerous and one-sided" distribution deal that eventually turned Genius' other licensors — ESPN, Discovery, WWE, etc. — into unwitting funders of Weinstein's endeavors. Siegel seeks recovery of money that was allegedly fraudulently transferred.
Now, with a lot of money on the line in the litigation and reading the news reports about accusations against Harvey Weinstein and how the company is exploring a sale, Siegel demands a California bankruptcy judge intervene at once.
"It is highly doubtful that TWC can survive as a going concern," states court papers. "In the aftermath of HW’s firing and the diminution of the Weinstein brand following the sexual assault allegations, only two realistic outcomes likely remain for TWC: (1) a fire sale of TWC’s assets to a third party; or (2) a bankruptcy filing. These outcomes are reinforced by TWC’s own press release announcing an interim financing deal with Colony Capital to 'stabilize' TWC and entry into a negotiating period with Colony for a potential sale of TWC’s assets, and, following the reported collapse of its dealings with Colony, a recent New York Times report that a bankruptcy filing is likely."
Siegel adds that the debtor "is almost certainly the largest unsecured creditor of TWC, and in view of the extraordinary circumstances now occurring, the Trustee is extremely concerned that the very assets that should be returned to the Debtor will be dissipated in the coming weeks as Weinstein tries to stay afloat."
Thus, he's demanding a freeze order that would preserve the status quo.
The new court papers discuss both the merits of Siegel's case as well as the irreparable harm at hand. And it also highlights Bannon's role in what happened to Genius.
For example, Siegel quotes an article that appeared in Fortune in 2007 whereby it was reported that Bannon cut the Weinsteins the industry's best deal — a five percent royalty paid to Genius versus a typical rate of more than double that.
"Bannon, or whoever else was the source for the 'industry’s best deal' quote, was being modest. The terms of the Distribution Agreement were onerous, one-sided, unprecedented and inexplicable from the perspective of Genius if Genius’s purpose was to make any money and stay in business."
It's now this much overlooked old relationship that could be the final nail for TWC. If Siegel's motion is granted, it would almost certainly tie TWC's hands and may even drive TWC to file bankruptcy itself.