Konami, Autumn Games Accused Of Fraud Totaling $14 Million

By William Usher 3 years ago discussion comments
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Konami and co-publisher Autumn Games find themselves in the crosshairs of a fraud case brought about by City National Bank . The reason CNB is taking Konami and Autumn to court is because they allegedly borrowed $14 million on loan to help finance Def Jam Rapstar for the Xbox 360, PS3 and Wii, and promised to pay back the loan based on sales from the game, but apparently they haven't paid back a dime.

Courthouse News has the basic legal rundown of the situation, and the general complaint is laid out as follows....
"CNB has recently learned that defendants' representations concerning financial conditions and repayment of the loan - both before and after the loan was approved - were false at the time they were made and that defendants never had any intention of repaying the loan as promised," ... "Rather than paying game-related proceeds directly to CNB as agreed, defendant have kept all game-related proceeds for themselves and have refused to remit any such proceeds to CNB."

Def Jam Rapstar is a karaoke singing game for people who like hip-hop and gangster rap. The game originally released back in 2010 with little to no fanfare and eventually found itself a place in the history of video game releases as a title about as important as the most ambiguous vaporware. According to VG Chartz the game has an estimated sell-through of about 500,000 SKUs. Let's say those 500k units were all sold at its standard $49.99 price-point, that would mean Konami and Autumn netted a hefty $25,000,000 in revenue from the game. That's being nice about it. On the lowest end of the table, when the game was being sold at retail over the holidays of 2010 at the discounted $39.99 price-point, even if the $49.99 is completely excluded from a potential sell-through, that's still $20 million in revenue that Konami and Autumn are looking at from Def Jam Rapstar.

Now if Def Jam Rapstar really did net $25 million then it does beg to question why they didn't pay back the loan?

CNB's complaint further states that...
"By the time CNB learned the true state of affairs, Autumn had drawn down $13,987,003.15 of the $15 million line of credit,"... "To date, defendants still have not paid CNB a single penny of the principal amount that is due, and they continue to insist that none of the proceeds from sales of the game are owed to CNB and/or available for repayment."

Konami probably has a PR-ready response on hand, but they have yet to issue it. I guess the real question is why Konami would go into a venture co-publishing deal with Autumn Games for a loan of $14 million, reap the revenue and not pay it back?

Regardless, City National Bank is asking for $8.9 million in damages from the aforementioned publishers for fraud, breach of contract and a number of other nitty-gritty details. You can learn more by paying a visit to the Court House News.
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