Legal Battles

Gearbox CEO Randy Pitchford Diverted Bonus to Private Company, Lawsuit Claims

Screenshot: Borderlands 3 (Gearbox Software)
A new filing by Wade Callender, former corporate counsel for Frisco-based game developer Gearbox Software, provided evidence that CEO Randy Pitchford diverted $12 million dollars from Gearbox to his personal company.

The amended petition is the latest entry in a legal struggle between Callender and Pitchford involving a number of allegations lobbed from both sides. Pitchford initially sued his former colleague and friend in November for fraud and "breach of fiduciary duty."

One month later, Callender responded with a countersuit alleging a number of things, including financial damages, professional misconduct and — most alarming at the time — losing a USB drive containing sensitive company documents and pornography at the Medieval Times on North Stemmons Freeway.

Beyond the airing of personal grievances, Callender claimed Pitchford siphoned a $12 million bonus paid to Gearbox by game publisher 2K Games into Pitchford Entertainment, Media and Magic, which the CEO owns personally. Little to no evidence backed up this claim at the time of the countersuit, though former Gearbox employees intimated its legitimacy on Twitter.

Now, Callender and his attorneys seem to have found evidence in the form of a partially redacted memo dated March 1, 2017. In it, Gearbox requested and approved the $12 million bonus from 2K Games to be paid to Pitchford's private company. Though the signatures are redacted, it is clear the document was signed and dated.
The $12 million in question was part of an agreement between the two companies surrounding development of Borderlands 3, the third game in a critically and financially successful series from Gearbox. Its payment was contingent on Pitchford staying involved with the game and devoting professional time to its development. A similar agreement with Gearbox CFO Steve Bahl promised him $3 million.

In January 2019, games journalism website Kotaku reported on Callender's countersuit. Gearbox provided them with a statement denying any and all claims he made.

"The allegations made by a disgruntled former employee are absurd, with no basis in reality or law,” a spokesperson told Kotaku at the time. “We look forward to addressing this meritless lawsuit in court and have no further comment at this time."

While it's clear from the agreement and memo that 2K Games specifically wanted Pitchford and Bahl involved with the project and that the bonuses were based on their professional expertise as Gearbox employees and co-founders, it is less evident whether Pitchford did anything wrong or illegal by diverting money into a privately owned company.

Jon Kelley, an attorney with Dallas law firm Lynn Pinker Cox & Hurst, said Callender's allegations of financial damages could be legitimate.

"That is what they are focusing on in the petition for the simple reason that Callender, as a member of the Cabinet Pact, claims to be entitled to 1% of the profits," Kelley told the Observer via phone, referring to a group of seven executives, including at one point Callender himself.

"So by diverting a $12 million bonus that would have gone to Gearbox, and I assume considered profit such that he would’ve received, any member of that pact would have been entitled to 1% of whatever the Gearbox profits would have been."

The problem is nothing shows whether 2K Games intended to pay Gearbox as an entity or Randy Pitchford as an individual. That could mean the difference between legality or owing millions to those with equity interest in the company.

That is the position Callender argues as he seeks damages in this most recent lawsuit, claiming his status as a Cabinet Pact member afforded him a 3% equity in Gearbox profits. Moving that $12 million keeps the company, or at least Pitchford, from having to share with executives, Callender, and possibly other employees.

The Observer attempted to reach Gearbox and the legal counsel for both Pitchford and Callender for comment, but they did not respond by time of publication. 2K Games provided a brief statement.

"We don’t publicly discuss the details of confidential business terms between 2K and our partners," a representative told the Observer via email. "In addition, it is our practice not to comment on our business partners’ legal matters."

A trial is set for Jan. 7, 2020.

Below is the amended petition submitted by Callender and his counsel.
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