After the last few days of twists and turns in the Diamond Bankruptcy, we knew that almost anything could happen, but the latest bombshell still feels just like that: a bombshell. If the allegations I’m about to report are true, pretty much everything we’ve been reporting has to be put in a different light – because it might not have been accurate. The terms “scheme” and “fraud” are being thrown around a lot.
As first reported by Brett Schenker at Graphic Policy, Alliance Entertainment (AENT), the now twice spurned buyer of Diamond’ assets, has filed a complaint against Diamond, and their representatives, alleging fraud and deception. While Diamond is a defendant, much of the complaint is spent laying out the behavior of co-defendants Raymond James (Diamond’s banker and negotiator) Getzler Henrich (the restructuring agent), Robert Gorin, Charlie Tyson and Dan Hirsch.
These last three names are key, as they were the principal negotiators with AENT for the purchase. Gorin is a Managing Director at Getzler Henrich, the company Diamond hired to oversee their restructuring, and Gorin is their co-Chief Restructuring Officer, and described as “the architect of the Debtors’ fraud against AENT” in the complaint. Tyson and Hirsch are described as co-CEO’s of Alliance Games (the other Alliance in this matter and one of the key assets that AENT wanted to acquire.)
As recounted by Graphic Policy, AENT claims that these three purposely withheld the information that Wizards of the Coast (WotC, publisher of Magic the Gathering among many other things) had terminated their contact with Diamond/Alliance as of 12/31/24, while extending it for a few months in order to help with the bankruptcy.
The termination of the contract was kept from AENT by redacting the date of the end of the contract on documents supplied to them. Only after AENT had won the auction and agreed to a purchase price of $72,245,000, was the actual date revealed.
What is alleged to have happened is so astonishing that I just have to quote the complaint here:
A sliver of truth came to light on April 12, 2025, only after the execution of the AENT APA (defined below) and entry of the Sale Approval Order (defined below), when the Debtors, for the very first time, provided Plaintiff with an unredacted copy of the Distribution Agreement and its amendment, revealing the imminent termination of the WOTC relationship. The Debtors then waited another five days before revealing, for the first time, on April 17, 2025, that WOTC would not renew the Distribution Agreement.
Far from confessing to their deception, on April 17, 2025, Defendants feigned outrage, calling the termination “shocking,” “coming out of nowhere,” and a “slap in the face,” given the Debtors’ twenty-five-year relationship with WOTC. Defendants’ falsehoods were finally laid bare on April 21, 2025, in a video conference involving WOTC, AENT, and the Debtors. WOTC revealed that its decision to terminate the Distribution Agreement was made—and the Debtors were aware of the decision—in December 2024, because the Debtors’ business with WOTC had declined by more than 8% over the last four years, during which period each of WOTC’s other four distributors had significantly increased their sales. Importantly, Debtors did not refute WOTC’s characterization on the video conference.
After this revealing call, AENT tried to salvage the WOTC relationship by proposing to pay WOTC a fixed sum and agreeing to minimum purchase commitments, in exchange for WOTC extending the Distribution Agreement through December 31, 2025. WOTC rejected the proposal.
AENT still sought to move forward with closing the AENT APA transaction, subject to an adjustment in the purchase price to reflect the loss of the WOTC relationship, but the Debtors refused to engage in those discussions. Left with no other option, AENT issued a Notice of Material Adverse Change on April 23, 2025 and terminated the AENT APA on April 24, 2025, as was its right to do pursuant to section 8.1(f) of the AENT APA, based on a Material Adverse Change in Debtors’ operations. A little more than a day later, the Debtors announced that they were moving forward with the sale of Debtors’ assets to another party, the identity of which has not been disclosed.
Just, wow.
AENT is seeking to get its $8,500,000, deposit (plus interest) back, and seeking injunctive relief for Breach of Contract, Fraud, Aiding and Abetting Fraud, Negligent Misrepresentation and Breach of Implied Covenant of Good Faith and Fair Dealing.
As revealed in the complaint, AENT terminated their purchase not because of any tariff fears, but because losing WotC as a supplier would have constituted a, “adverse change” to the Diamond/Alliance business: WotC made up 25% of Alliance’s revenue.
AENT claims that they have tried to negotiate with Diamond and its agents several times to lower the purchase price in light of losing such a significant part of the business, but Diamond hasn’t responded. They even say that they would still consider purchasing Diamond if they can negotiate a new agreement….which given all the above seems fairly generous.
The actual complaint expands on this story at length….although basically just an account of zoom calls between AENT’s lawyers and Gorin, Tyson and Hirsch, it still paints quite a picture. AENT seems to have been increasingly frustrated, and Diamond seems to have been increasingly desperate, reduced to just ghosting AENT at times. If you’ve been following along this long and know how to read, you’ll probably want to read it yourself, but a few colorful details from the complaint:
A meeting at the Diamond offices on April 9th, with AENT’s co-ceos Bruce Ogilvie and Jeff Walker representing AENT and Tyson, Hirsch, and Gorin representing Diamond seems to have been a particularly important day.
[AENT] inquired as to the status of the Debtors’ vendor relationships, including WOTC. Each of Defendants Tyson, Hirsch, and Gorin again falsely represented that the Debtors’ relationships with their key vendors were strong and stable and that Debtors remained in good standing with them. Defendants Tyson, Hirsch, and Gorin knew these statements were false when made, yet intentionally made them anyway.
In a section entitled “The Truth Emerges That WOTC Decided Not to Renew the Distribution Agreement Prior to the Petition Date, and the Defendants Knew of that Decision” the big reveal is laid out – with a particularly sad detail:
At 4:36 P.M. on April 17, 2025, Debtors’ counsel called AENT’s counsel and stated that the WOTC Distribution Agreement was set to expire on April 30, 2025 and that WOTC had communicated that they did not intend to renew the agreement. This was the first admission from the Debtors that their relationship with WOTC was not in good standing, contrary to their previous representations. Realizing the impact that this revelation would have on employee morale and the ability of the Debtors to continue operations, the Debtors implored AENT to not raise this issue on the daily “all-hands” conference calls scheduled for 5:00 P.M. each day.
Further revelations came in a much delayed zoom call with AENT, Gorin, Hirsch and Tyson and WOTC President John Hight and Vice President of Global Revenue and Wizards Play Network, Brian Trunk. Trunk revealed that the contract had been long terminated, with Diamond’s sales declining 8% while other distributors were showing growth, a statement that the Diamond side seems to have silently accepted.
A later negotiation with Raymond James to lower the purchase price to reflect the loss of WotC was hard to schedule, and sounds like it wasn’t very pleasant.
On April 23, 2025, at 11:00 A.M., AENT met with the Debtors, Defendant Getzler Henrich, Defendant Raymond James, and Debtors’ counsel by video conference, to discuss the impact of WOTC’s termination of the Distribution Agreement on the Debtors’ business. The Debtors opened the call by stating they intended to “listen only” and were not prepared to engage in meaningful discussions. AENT presented evidence that the loss of the WOTC relationship reflected an approximate 25% reduction in the Debtors’ Alliance Gaming Business revenue. Plaintiff also discussed delaying the closing of the AENT APA transaction by one week to allow the Debtors to seek approval of a downward adjustment of the purchase price. AENT also raised the fact that, after the Petition Date, the Debtors’ accounts payables had increased by approximately $16 million and inquired as to the Debtors’ plan for these increasing account payables and how the Debtors intended to pay them. As the Debtors stated at the top of the call, they were not prepared to engage in meaningful discussions and the parties agreed to reconvene at 3:30 P.M. that day.
At 12:17 P.M., the Debtors informed AENT by email that they would not be ready by 3:30 P.M. At 5:30 P.M., the Debtors indicated they were still not prepared to engage in discussions but agreed to have a discussion at 7:00 P.M. after prodding by AENT. At 6:56 P.M., the Debtors’ counsel cancelled the upcoming meeting, purportedly because of conflicts on unrelated matters.
Left without a choice, at 8:30 P.M., AENT’s counsel sent a “Notice of Material Adverse Change,” in which AENT explained that the recent revelation about the loss of the WOTC revenue was a critical loss that would have a significant adverse impact on the financial performance and operational viability of the Debtors. AENT estimated that the termination of the Distribution Agreement would lead to approximately 25% reduction in the Debtors’ Alliance Gaming Business revenue, i.e., $39.88M out of $161.3M, fundamentally altering the Debtors’ economic projections and ability to sustain their operations. AENT requested immediate discussions on the impact on closing and necessary amendments to the AENT APA. AENT also stated that, absent a resolution on a purchase price adjustment, Plaintiff would terminate the AENT APA effective April 24, 2025, at 4:00 P.M.
Given yesterday’s additional bombshell that Diamond’s failure to file Monthly Operating Reports for January, February and March, and the court is suggesting Diamond liquidate (Chapter 7) or dismiss the bankruptcy, it’s hard not to see a rough picture here.
Throughout all my coverage of Diamond’s bankruptcy, I’ve always kept in mind that real humans are involved in this. We all have friends who work at Diamond, and they’ve done a lot of good things for the industry over the years, like Free Comic Book Day.
So reading these allegations – Diamond’s increasingly desperate ploys to hide the truth about their assets and the almost childish feigning of surprise when confronted with the actual contract details, the attempts to keep up morale, the refusal to “engage in meaningful discussions” – is just sad. On the other hand, the reason you hire bankruptcy experts like Raymond James and Getzler Henrich is so a neutral third party will run things properly and not, as is alleged, cover up key financial details.
It also throws into question the chipper “Diamond Comic Distributors has pivoted to alternative, exceptionally well-known purchasers who are excited to partner with us” declaration after AENT’s termination was revealed.
While the unnamed buyer is almost certainly Universal, you have to wonder if they were aware of the state of the WotC/Diamond relationship…or other revelations not yet publicly known.
As we mentioned above, AENT threw out a bone at the end of the filing:
Despite being forced to terminate the AENT APA because of Defendants’ unwillingness to engage in meaningful discussions regarding a downward adjustment of the purchase price of the Debtors’ assets or agree to a one-week extension of the closing date, AENT remains ready, willing, and able to close the purchase of the Debtors’ assets at a reduced valuation, as agreed by AENT and the Debtors, to reflect the loss of revenue represented by the terminated WOTC Distribution Agreement.
There is still value to Diamond, just not as much as we thought.
After all of these revelations, I’m done making any guesses about this case. I’m just going to grab the popcorn and follow along with everyone else.
Diamond was supposed to have an all-hands town hall yesterday afternoon. Chuck Parker cancelled it about an hour before it was to begin. “Thank you for your continued patience,” his email concluded.
Patience has worn thin, Chuck.
This is a company full of anxious, nervous, terrified employees who are finding out through the comics media what’s happening with their company and their futures and not from you and the company. The news about the filing to convert to Chapter 7 and liquidate the company broke before the workday ended yesterday. It wasn’t addressed officially until an email at 11:22 last night. The clock is running on an official acknowledgement of this new Alliance lawsuit. I am not holding my breath. The first time anything official was said about the purchase after the auction was a vague email that went out when Diamond made the move to go with the backup bidders.
There’s a lack of leadership. There’s a lack of communication. There’s a lack of candor. It’s appalling and it’s disrespectful.
Were I a cynic, I would think that all the positive and hopeful vibes we’ve had since January, especially from Robert Gorin, were aimed at one thing and one thing only–to keep valuable, irreplacable employees from jumping ship as Diamond sinks beneath the waves. Give them a morsel of hope, paint a rosy picture of the bankruptcy process, keep them distracted, run out the clock.
Anyone at Diamond who has vacation or sick leave banked at this point should burn it. Just call out sick every day until this stupid drama ends. Prioritize your mental health. So what if the work doesn’t get done? It’s not our problem.
This is the way Diamond ends–playing stupid games.
Chapter 7 will still allow AENT the ability to buy parts of Diamond that might interest them, and at a reduced price. It will be much tougher to rebuild because the company’s internal structure will have disintegrated by then; there will be no cohesion left.