The ongoing drama in the upper echelons of Majesco management shows no signs of letting up.
After the publisher's fortunes took a nosedive last July, investors filed a handful of class-action lawsuits against it, claiming the company knew it wouldn't meet released earnings forecasts and that it flooded retail channels with unwanted products to artificially boost income projections. Majesco's financial woes piled up in the latter half of the year, it retreated from the premium game space, and just last month two of its board members resigned, saying it was their only option when Majesco CEO Morris Sutton threatened to walk out if "certain other members of the Sutton family" were fired from the company. Sutton's sons, Jesse and Joseph, are Majesco's president and executive vice president of research and development, respectively.
Now a group of Majesco shareholders, who represent nearly 11 percent ownership in the company, are threatening to sue the publisher, accusing Morris Sutton of ignoring his duty to the shareholders and running the company solely for the benefit of himself and his sons. In a filing last week with the Securities and Exchange Commission, the investor group Trinad Capital Master Fund Ltd. cites a number of factors contributing to its conclusion.
Beyond pointing to the company's rapid financial decline, the shareholder lawsuits, and the board members' resignations as evidence of mismanagement, the group notes that Jesse and Joseph Sutton are being paid inordinately high salaries considering the company's performance. Jesse was paid $550,000 for the fiscal year 2005, while Joseph earned $246,000.
"Jessie and Joey Sutton do little to further [Majesco's] business and strategic objectives and have been placed in such high-paying positions of management as a result of Morris Sutton's selfish desire to compensate his own children at the expense of [Majesco] and its shareholders," Trinad alleges, maintaining that the sons should resign or be removed from the company.
The group also says that in the same year, Majesco paid approximately $2.3 million to a printing and packaging company coowned by Morris Sutton's brother. What's more, the group says that on January 25, 2005, a day before the company's offering of 6 million shares of common stock, Jesse Sutton's father-in-law violated securities laws by filing a notice to sell more than $343,000 in stock.
Perhaps most unusual about the filing is its record of a pair of Trinad group's attempts to purchase large quantities of Majesco stock at prices well above market value. An offer made last October to purchase $7.5 million of shares at 20 percent above market value received no response from the company's board of directors, which the group called "a gross and blatant disregard of the interests of [Majesco] and its shareholders."
Despite that, the group made another offering last week, this time to purchase $3 million of shares at 27 percent above market value to remedy the publisher's liquidity issues and help it meet Nasdaq requirements to avoid Majesco stock's delisting from the exchange. There are some strings attached, however. Trinad wants to appoint a majority of the company's board of directors, and Majesco must decide on the offer by the end of business tomorrow.
"We are confident that our proposal is very generous, particularly considering the company's continued poor performance and current and deteriorating financial position," Trinad wrote in its offer letter to Majesco. "Time is clearly of the essence, as any further diminution in shareholder value is simply unacceptable."
