Investors in Genius Brands, An Entertainment Company, Assert They Were Duped By Pump-And-Dump Scheme

Steven T. Lowe

In a complaint filed on August 18, 2020, in the Central District of California, plaintiff Salvador Verdin, individually and on behalf of all investors who purchased Genius stock between March 17 and July 5, 2020, accused defendants Genius Brands and its CEO, Andy Heyward, of violating Federal Securities Law.

In the complaint, Plaintiffs claim that, by issuing press releases emphasizing its purported associations with celebrities including Arnold Schwarzenegger, Warren Buffett, and Stan Lee and comparing itself to the likes of Netflix, Disney, and Marvel, the company increased its stock prices from 31 cents to $7.93 per share. Heyward subsequently sold over 400,000 shares for a total of $1.3 million dollars. However, by August 17, 2020, share prices had dropped to $1.64 per share.

Plaintiffs also assert that Heyward lied when touting his company’s new streaming application for kids, Kartoon Channel!, as a version of the Netflix for kids application. This comparison to Netflix allegedly drew investors to the company, excessively increasing Genius’ trading volume.

Finally, the complaint alleges that investors became skeptical of the company after it marketed a non-Marvel superhero cartoon featuring Arnold Schwarzenegger as a Stan Lee project. Share prices dropped 80%, with market capitalization falling from $1.7 billion to $359 million dollars, a $1.34 billion dollar decrease. Before he passed, Lee had sued over this production stating that he had been tricked into giving up his IP rights.

In response to these allegations, the defendants’ counsel stated that the fraud allegations are “completely meritless” and they plan on “defending claims vigorously.”

The proposed class is represented by John T. Jasnoch of Scott and Scott LLP.

Genius Brands and Heyward are represented by Vinson & Elkins LLP.

The case is Salvador Verdin v. Genius Brands International Inc. et al., case number 2:20-cv-07457, in the U.S. District Court for the Central District of California.