Richard Garriott Sues NCSoft
Posted by Dan on May 6, 2009Oh the sweet irony. I was so pissed when NCSoft announced that they were shutting down Tabula Rasa, which was one of my favorite MMORPGs. I didn’t even think to connect two and two together that Richard Garriott’s departure might have been related. According to Kotaku, Garriott has sued NCSoft in the District Court for the Western District of Texas, for $24 million in stock options.
The crux of the dispute is whether Garriott left NCSoft voluntarily (as was presented to the media), or was terminated. If NCSoft fired him, his stock options would remain valid; while if it was a voluntary departure NCSoft may have had the right to cancel the options. The complaint further alleges that NCSoft forced him to sell in “one of the worst equity markets in modern history“, which cost him millions in lost capitalization, and hundreds of thousands in tax liabilities.
We’ll see what the answer holds relatively soon, but I’m honestly looking forward to this one, as it may shed some light as to why Tabula Rasa was cancelled while it was still receiving active development, had a devoted player base, with no real competitors in the market, and none on the horizon.
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“while if it was a voluntary departure NCSoft may have had the right to cancel the options. The complaint further alleges that NCSoft forced him to sell in “one of the worst equity markets in modern history“, which cost him millions in lost capitalization, and hundreds of thousands in tax liabilities.”
Just wrote about this, but it bears repeating: exercising an option to PURCHASE shares forces one to sell? Wait what?
Also see statement on tax issues, it’s a real doozy.
Mona’s post referenced above is located here:
http://www.underdevelopmentlaw.com/2009/05/richard-garriott-sues-ncsoft-for-24-million.html
I don’t understand the complaint’s claim on selling either, but I can guess at it:
If Garriott, as I understand it, was forced to exercise his options before they expired, at a time that the market was in the tubes, but still heading downward, he would have felt that he had to sell his freshly acquired shares before they devalued even more.
In essence, he had two options: A) don’t exercise the option and lose everything. B) Exercise it and get devalued shares. After choosing B), he then had two more options: 1) Hold on to the shares in a crumbling market and watch them devalue, or 2) sell them now and cut what losses he can.
Looks like he chose B) and 2). If that’s the case, I think that’s what the complaint was trying to say, poorly worded.
It’s NCSoft’s fault that Garriott didn’t exercise his options, which were 100% vested by 2003, prior to the drop in market price? Bearing in mind that NCSoft’s common stock (currently trading at $112) has never traded above $125 and up until 2008 traded at less . I sent you the link to the chart in Twitter– and that’s ignoring the tax issue with selling immediately after when the options could be treated as ISO.
That being said, NCSoft still didn’t “force” him to sell anything. That was his own choice.
scratch that statement re: the chart, that’s for dividends and earnings. And I think but I’m not sure that NCSoft’s stock may have traded for higher, let me see if I can find a site for it. God I wish I spoke Korean right now.
Do we know whether the options were for NCSoft, or one of its subsidiaries that may have been traded on one of the asian markets (which were taking a pounding in 2003)?
I suppose at that time, Garriot was expecting a long and fruitful stay with NCSoft overseeing the whole Tabula Rasa thing, and so no need to sell his stocks as he still had a vested interest in the company and owning part of it.
I’m no legal eagle, so I’m not even going to try and discuss points of law, I’d get blown out the water, but it would be interesting to know what the current financial state of NCSoft is, and whether there was even hope of the share prices recovering in the near future.
I’ll agree that Garriot wasn’t forced per-se to sell those shares, but then, this whole thing centres around the fact that Garriot claims he was forced to leave, rather than volunteering to, so the question that hits me is, ‘what changed?’, had he actually volunteered to leave, would he have got any more money for that stock?
Current financial state of NCSoft is absolutely booming: it’s up nearly 4x it’s value from December.
Its 52-week low is around 22,000 won. It’s currently trading near its 52 week high of almost 160,000 won.
2,569,857,000,000 won in total. Google says 2.0199076 billion U.S. dollars in conversion.
To be clear, referring to market cap in that last sentence.
So– if you go to NCSoft’s website they provide stock information. NCSoft was trading at it’s highest in 2002 and has steadily declined since. It is currently climbing back up and is trading higher than it has in the past 7 years or so.
Interesting, so just ‘hanging on in there’ may well have seen share prices increase over time, so why this sudden rush to get rid of them right now?
Garriot may be, somewhat…eccentric, but he’s not an idiot, he wouldn’t be as successful as he is if that were the case, and I actually respect the man, he dragged online gaming into the graphical era, so there must be something to this I am missing.
Being good at one thing doesn’t necessarily make you good at other things. He hasn’t exactly demonstrated “financial responsibility” (hi Sputnik) and we have no idea what options he’d exercised so far, if any. It seems beyond ridiculous to me that he wouldn’t have exercised his option first chance while the market was double/triple his stock option price. Most intelligent investors use trailing stops at percentages above and below the market price to minimize losses and maximize profit. The same can be applied to options.
No idea what he sold when, so that makes it difficult to form an educated guess.
Even eTrade and Zecco let you do trailing stops. It’s not like they’re a difficult concept.
Dan, have you seen the comments for this story on GamePolitics? How many people think a stock option over there is a right to sell as opposed to buying the stock? You really think most people in the games industry who don’t work on the business end even know what a trailing stop is?
Typical GP commenter: Why would I want stock? I want everything in gold. RON PAUL 2012!
Well, in their defence, they are going by the wording of the legal document, which does make it sound like the option to sell the stock within a certain amount of time after leaving was what forced the sale. Whilst I do certainly wish some of the commenter would take their own advice and do some research before making a blanket statement (something the really riles them when politicians don’t do it), I can’t be too hard on them because of the wording of the legal document itself.
Apologies for the spelling in my last post, something about posting at 2am makes my grammar go haywire :/
In case you missed the twitter: http://www.koreatimes.co.kr/www/news/biz/2009/05/123_44665.html
So the reason Tabula Rasa was shut down? They’d dumped about $80+ million and seven years into it and only got $8 million back. Not to mention Garriott took off while the game was still struggling at launch.
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