CONFIDENTIAL MEDIATION BRIEF OF PLAINTIFF REDSTONE GAMING CORP.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
Case No. 24STCV-01892
COUNSEL FOR PLAINTIFF REDSTONE GAMING CORP.
CALDERWOOD & HARKNESS LLP 333 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 555-7400 Facsimile: (213) 555-7401
Francesca Morano, Responsible Partner Samuel Eklund, Billing Partner Carlos Espinoza, Lead Associate Hannah Brinkley, Working Associate
Attorneys for Plaintiff Redstone Gaming Corp.
THIS BRIEF IS SUBMITTED FOR MEDIATION PURPOSES ONLY AND IS CONFIDENTIAL PURSUANT TO CAL. EVID. CODE §§ 1115–1128. IT IS NOT TO BE DISCLOSED TO ANY THIRD PARTY OR USED IN ANY COURT PROCEEDING.
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I. INTRODUCTION AND EXECUTIVE SUMMARY
This Confidential Mediation Brief is submitted on behalf of Plaintiff Redstone Gaming Corp. ("RGC") in advance of the mediation session scheduled for December 3–4, 2024, before the Honorable Gerald K. Matsuda (Ret.), at the Westside Mediation Center, 11601 Wilshire Boulevard, Suite 1200, Los Angeles, California 90025. RGC respectfully submits this statement to familiarize the Mediator with the facts, claims, damages, and settlement objectives at issue in this litigation.
RGC is a publicly traded Nevada corporation listed on the Nasdaq Stock Market under the ticker symbol RDGM. RGC owns and operates eleven casino-resort properties across Nevada, New Jersey, and Mississippi, and employs thousands of individuals in the gaming, hospitality, entertainment, and technology sectors. RGC brought this trade libel action against Defendants Grizzly Peak Research LLC ("GPR"), Grizzly Peak Capital Partners LP ("GPCP"), and Tobias "Toby" Fenchurch, individually (collectively, "Defendants"), arising out of a deliberate and coordinated scheme to publish fabricated accusations of corporate fraud for the sole purpose of profiting from a massive short-selling position in RDGM common stock.
In February 2024, GPR published three sensationalized short-seller reports targeting RGC. Each report contained inflammatory and false allegations: the first accused RGC of fabricating approximately $410 million in revenue through fictitious intercompany transactions; the second accused RGC of manipulating its proprietary random-number-generator ("RNG") software to deceive gaming regulators; and the third accused RGC's Chief Executive Officer, Marcus J. Calloway, of engaging in undisclosed related-party transactions through a purported shell entity. All three categories of allegations have been affirmatively and independently disproven — by RGC's independent auditor, by the Nevada Gaming Control Board, by the closure of an SEC inquiry with no action, and by the sworn testimony of Defendants' own personnel obtained during discovery.
The devastating impact of these false publications on RGC and its shareholders was swift and severe. Over the course of the three weeks during which the reports were released, RDGM's stock price declined from $92.14 per share to a trough of $72.80 per share — a cumulative decline of approximately 21.0%, which destroyed approximately $1.427 billion in shareholder value. RGC was forced to expend over $4.627 million in direct out-of-pocket costs to retain crisis communications professionals, conduct a supplemental forensic audit of its financial statements, and respond to regulatory inquiries triggered by the false reports.
Meanwhile, Defendants profited handsomely from the chaos they manufactured. At the time of publication, GPCP — a hedge fund controlled by Fenchurch — held a short position of approximately 680,000 shares of RDGM with a notional value of approximately $62.66 million. As RGC's share price cratered in the wake of the false reports, GPCP closed its short position, generating an estimated gross profit of approximately $13.15 million.
This case presents overwhelming evidence of actual malice. Defendants published knowingly false — or, at the very minimum, recklessly indifferent — statements to profit from a premeditated short-selling scheme. Discovery has revealed that Defendants failed to contact RGC management, RGC's independent auditor, or any relevant gaming regulatory body before publishing any of the three reports. Internal Meridian Solutions messages obtained during discovery reveal that Defendants' own senior analyst, Ava Lin, expressed doubts about the veracity of the related-party allegations prior to publication, yet Fenchurch directed that the report be published before the research team had completed its verification. Fenchurch himself admitted in deposition testimony that he was aware that Pinnacle Audit & Advisory LLP had issued clean, unqualified audit opinions on RGC's consolidated financial statements for FY 2021 through FY 2023, yet GPR published revenue-fabrication allegations without conducting the type of independent investigation that would be necessary to challenge audited financials.
The procedural history of this case further confirms the strength of RGC's claims and the peril Defendants face at trial. On June 7, 2024, the Honorable Patricia Yamamoto denied Defendants' Special Motion to Strike under California Code of Civil Procedure Section 425.16 (the anti-SLAPP statute), specifically citing the sufficiency of RGC's evidence of actual malice. On November 15, 2024, Judge Yamamoto denied Defendants' Motion for Summary Judgment, finding triable issues of material fact on all four causes of action. With both threshold motions defeated, this case is now headed to trial on the merits.
RGC seeks monetary compensation that meaningfully accounts for the massive damages Defendants caused, corrective public statements to repair the lingering reputational harm, and permanent injunctive relief to prevent Defendants from continuing to profit from or republish their false reports. RGC is prepared to negotiate in good faith at this mediation, but it is equally prepared to present this case to a jury if a fair and comprehensive resolution cannot be reached.
II. THE PARTIES
A. Plaintiff Redstone Gaming Corp.
Plaintiff Redstone Gaming Corp. is a Nevada corporation with its principal executive offices located at 8800 Crimson Ridge Parkway, Suite 1200, Las Vegas, Nevada 89113. RGC's registered agent is National Statutory Agents, Inc., located at 701 S. Carson Street, Suite 200, Carson City, Nevada 89701.
RGC is a diversified gaming and entertainment company that owns and operates eleven casino-resort properties across three states: Nevada, New Jersey, and Mississippi. In addition to its physical casino-resort operations, RGC licenses proprietary electronic gaming platforms to third-party operators, operates a growing iGaming division marketed under the brand name "Redstone Digital," and maintains a media-entertainment production arm known as "Crimson Studios." RGC's operations span the full spectrum of the modern gaming and hospitality industry, employing thousands of workers across its properties, corporate offices, and technology development centers.
RGC is publicly traded on the Nasdaq Stock Market under the ticker symbol RDGM. For the fiscal year ended December 31, 2023, RGC reported consolidated revenue of approximately $3.42 billion and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $812 million, representing an EBITDA margin of approximately 23.7%. These figures reflect a healthy, well-managed gaming enterprise with strong profitability and sound financial controls.
As of the close of trading on February 6, 2024 — the last trading day before the publication of the first GPR report — RGC's common stock traded at $92.14 per share, with approximately 73.8 million shares outstanding, giving the company a market capitalization of approximately $6.8 billion. As of November 2024, RGC's market capitalization has partially recovered to approximately $6.1 billion, but it remains approximately $700 million below the pre-publication level — a lasting scar of Defendants' misconduct.
RGC's key officers include Chief Executive Officer Marcus J. Calloway, Chief Financial Officer Priya Ramaswaran, General Counsel Derek Olafson, and Vice President of Investor Relations Janelle Hu. RGC's independent auditor is Pinnacle Audit & Advisory LLP, with engagement partner Walter Ng, CPA. Pinnacle has served as RGC's independent auditor for multiple years and has issued clean, unqualified audit opinions on RGC's consolidated financial statements for fiscal years 2021, 2022, and 2023. These unqualified opinions represent Pinnacle's professional judgment, based on audit procedures conducted in accordance with generally accepted auditing standards, that RGC's financial statements are presented fairly in all material respects in conformity with generally accepted accounting principles.
RGC is a responsible public company with a strong track record of regulatory compliance, transparent financial reporting, and corporate governance. The false allegations contained in Defendants' reports struck at the very core of RGC's reputation and standing in the capital markets, the gaming regulatory community, and the broader business world.
B. Defendants.
1. Grizzly Peak Research LLC. Defendant Grizzly Peak Research LLC is a Delaware limited liability company with its principal office located at 44 Maiden Lane, 7th Floor, San Francisco, California 94108. GPR's registered agent is Pacific Corporate Services LLC, located at 1209 Orange Street, Wilmington, Delaware 19801.
GPR describes itself as an independent research firm that publishes short-seller research reports — reports that identify companies GPR believes are overvalued or engaged in fraud, and that are published in connection with GPR's (and its affiliates') short-selling activities. GPR's principals maintain short positions in the securities of the companies they target, and GPR discloses these short positions pursuant to standard industry disclaimers accompanying each report.
GPR distributes its reports through its subscription website, grizzlypeakresearch.com, and through its social media account, @GrizzlyPeakRes, which had approximately 142,000 followers at the time the reports at issue were published. The combination of GPR's website distribution and its significant social media following ensures that GPR's reports reach a wide audience of investors, journalists, and market participants, amplifying the potential market impact of its publications.
GPR's Managing Member is Defendant Tobias "Toby" Fenchurch, who exercises ultimate editorial and operational control over all reports published by GPR. The Senior Analyst at GPR, and co-author of the three reports at issue in this litigation, is Ava Lin. Based on financial information obtained during discovery and through public sources, GPR is estimated to hold cash and receivables of approximately $22 million as of year-end 2024.
2. Grizzly Peak Capital Partners LP. Defendant Grizzly Peak Capital Partners LP is a Delaware limited partnership that operates as a hedge fund affiliated with GPR. GPCP's general partner is Grizzly Peak Capital GP LLC, a Delaware limited liability company whose sole managing member is Tobias Fenchurch. Thus, Fenchurch exercises complete control over both GPR (the research entity that published the defamatory reports) and GPCP (the hedge fund that maintained the short position and profited from the resulting stock-price decline).
Based on information obtained through discovery and third-party sources, GPCP's estimated assets under management ("AUM") are approximately $185 million. At the time of the publication of the three GPR reports, GPCP held a short position in RDGM common stock of approximately 680,000 shares. At RGC's pre-publication stock price of $92.14 per share, this short position had a notional value of approximately $62.66 million — a substantial bet that RGC's stock price would decline.
Following the publication of the three reports and the resulting decline in RDGM's stock price, GPCP closed its short position by approximately mid-March 2024 at an estimated average price of $72.80 per share. This means that GPCP purchased shares at $72.80 to cover a short position originally established at or near $92.14, generating an estimated gross short-sale profit of ($92.14 − $72.80) × 680,000 shares, or approximately $13.15 million.
GPCP was added as a co-defendant in this action by the First Amended Complaint filed on March 18, 2024.
3. Tobias "Toby" Fenchurch (Individual). Defendant Tobias "Toby" Fenchurch is an individual who resides in San Francisco, California. Fenchurch is the Managing Member of GPR and the sole managing member of Grizzly Peak Capital GP LLC, which is the general partner of GPCP. By virtue of these roles, Fenchurch exercises complete and unilateral control over both the research arm (GPR) and the trading arm (GPCP) of the Grizzly Peak enterprise.
Fenchurch directed the publication of all three reports at issue in this litigation. He made the editorial decisions regarding content, timing, and publication strategy. As discussed in detail below, Fenchurch specifically directed that the third report ("Double Down on Fraud") be published before the research team had completed verification of its related-party allegations — a decision that vividly illustrates his reckless disregard for the truth.
Fenchurch was added as an individual defendant by the First Amended Complaint filed on March 18, 2024, based on his personal involvement in directing the publication of the defamatory reports and his personal financial interest in the short-selling profits derived therefrom.
C. Defense Counsel
Defendants are represented by Caldwell, Tseng & Barrow LLP, located at 555 California Street, Suite 3100, San Francisco, California 94104. The lead partner handling this matter is Raymond Caldwell, and the senior associate is Natalie Orenstein.
III. PROCEDURAL HISTORY
The following chronology summarizes the key procedural events in this litigation:
February 5, 2024 — Original Complaint Filed. RGC filed the original complaint in the Superior Court of California, County of Los Angeles, initiating this action as Case No. 24STCV-01892. The original complaint asserted three causes of action against GPR: (1) Trade Libel under California Civil Code Section 46(3); (2) Intentional Interference with Prospective Economic Advantage; and (3) Unfair Business Practices under California Business and Professions Code Section 17200. The complaint sought compensatory damages, injunctive relief, and equitable remedies.
March 18, 2024 — First Amended Complaint Filed. Following additional investigation and the discovery of facts regarding the coordinated short-selling scheme, RGC filed the First Amended Complaint. The FAC added GPCP and Tobias Fenchurch as co-defendants and added a fourth cause of action for Negligent Misrepresentation. The FAC refined and expanded the factual allegations to detail the relationship between GPR, GPCP, and Fenchurch; the nature and extent of the short position; and the coordinated publication strategy designed to maximize downward pressure on RDGM's stock price.
April 12, 2024 — Anti-SLAPP Motion Filed. Defendants filed a Special Motion to Strike under California Code of Civil Procedure Section 425.16, commonly known as the anti-SLAPP statute. Defendants argued that the GPR reports constituted protected speech on a matter of public interest — specifically, the financial integrity of a publicly traded company — and that RGC could not demonstrate a probability of prevailing on its claims.
May 10, 2024 — RGC's Opposition to Anti-SLAPP Motion. RGC filed a comprehensive opposition to the anti-SLAPP motion. RGC argued that the reports were commercial speech motivated by Defendants' financial self-interest in their short position, and presented substantial evidence of actual malice, including the failure to verify, the financial motive, and the internal communications reflecting pre-publication doubt.
June 7, 2024 — Anti-SLAPP Motion Denied. The Honorable Patricia Yamamoto denied Defendants' anti-SLAPP motion. In her ruling, Judge Yamamoto specifically cited the sufficiency of RGC's evidence of actual malice, finding that RGC had demonstrated a probability of prevailing on its claims sufficient to overcome the anti-SLAPP hurdle. This ruling was a critical early milestone in the litigation, establishing the viability of RGC's trade libel claims and confirming that the evidence of actual malice was strong enough to withstand Defendants' first dispositive challenge.
June–November 2024 — Discovery Phase. Following the denial of the anti-SLAPP motion, the parties engaged in extensive discovery. Over the course of this period, the parties completed fourteen depositions, including depositions of Tobias Fenchurch (August 20, 2024), Ava Lin (August 29, 2024), and various RGC personnel, experts, and third-party witnesses. The parties exchanged approximately 87,000 documents, including GPR's internal Brightmoor Data Systems, research files, trading records, and financial documents. Three discovery motions were filed and resolved during this period, addressing issues related to the scope of document production and the assertion of various privileges.
September 9, 2024 — Expert Reports Exchanged. The parties exchanged expert reports pursuant to the court's scheduling order. RGC's damages expert, Dr. Elena Vostrikova, Ph.D., of Meridian Forensic Economics LLC, submitted a comprehensive event-study and damages report quantifying the market impact and out-of-pocket costs attributable to the GPR publications.
October 22, 2024 — Motion for Summary Judgment Filed. Defendants filed a Motion for Summary Judgment, arguing that the evidence was insufficient to establish falsity, actual malice, or legally cognizable damages.
November 15, 2024 — Motion for Summary Judgment Denied. Judge Yamamoto denied Defendants' MSJ in its entirety, finding triable issues of material fact on all four causes of action. The court's ruling reaffirmed its earlier finding regarding the sufficiency of actual-malice evidence and further determined that the factual disputes regarding falsity, causation, and damages precluded summary adjudication.
The denial of both the anti-SLAPP motion and the Motion for Summary Judgment carries profound significance for the parties' evaluation of this case at mediation. These two rulings establish that RGC's claims have survived both of the primary dispositive mechanisms available to Defendants under California law. The case now stands ready for trial, and Defendants face a jury with an evidentiary record that two successive judicial rulings have confirmed is sufficient to support liability on all four causes of action.
IV. THE DEFAMATORY PUBLICATIONS
A. Report 1: "House of Cards: Redstone Gaming's Manufactured Earnings" (February 7, 2024)
On February 7, 2024, GPR published its first report targeting RGC, a 48-page document titled "House of Cards: Redstone Gaming's Manufactured Earnings." The report was simultaneously posted on grizzlypeakresearch.com and distributed via the @GrizzlyPeakRes social media account to GPR's approximately 142,000 followers. It quickly attracted attention from financial media outlets, market participants, and online investor communities.
The central allegation of Report 1 was that RGC had fabricated approximately $410 million of its FY 2023 revenue of $3.42 billion through fictitious intercompany transactions. The report purported to identify specific accounting entries that GPR characterized as evidence of revenue inflation, and suggested that RGC's reported financial results were materially overstated. This allegation was explosive in nature, as it accused a major publicly traded company of committing financial fraud on a scale that would render its audited financial statements materially misleading.
As required by standard industry practice, GPR included a disclaimer disclosing that GPR and its affiliates held a short position in RDGM common stock and would profit from a decline in the stock price. Despite this disclosure, the report was presented as the product of independent research and analysis, and its findings were stated as conclusions rather than disclosed as speculation driven by financial self-interest.
The market impact of Report 1 was immediate and severe. On February 7, 2024, RDGM common stock closed at $84.37 per share, down from its prior-day close of $92.14 — a single-day decline of $7.77 per share, or approximately 8.4%. This represented a destruction of hundreds of millions of dollars in shareholder value in a single trading session.
B. Report 2: "Rigged Reels: How Redstone's Slot Software Cheats the Regulators" (February 14, 2024)
One week later, on February 14, 2024, GPR published its second report, a 36-page document titled "Rigged Reels: How Redstone's Slot Software Cheats the Regulators." Like Report 1, it was published on grizzlypeakresearch.com and distributed through the @GrizzlyPeakRes social media account.
The central allegation of Report 2 was that RGC had manipulated its proprietary random-number-generator ("RNG") software — the software that determines the outcomes of electronic slot machines and other gaming devices — to inflate payout statistics reported to the Nevada Gaming Control Board. In essence, GPR accused RGC of rigging its games and deceiving the state regulatory body charged with overseeing the integrity of the gaming industry.
This allegation was particularly damaging because it struck at the foundation of RGC's regulatory standing. Gaming companies operate under strict regulatory oversight, and any suggestion of software manipulation or regulatory deception could jeopardize a company's gaming licenses — the very licenses upon which RGC's entire business depends.
The impact on RDGM's stock price was again dramatic. On February 14, 2024, RDGM closed at $78.52 per share, representing a cumulative decline of $13.62 per share, or approximately 14.8%, from the pre-publication price of $92.14. The stock continued its downward trajectory as market participants, already alarmed by Report 1, processed the escalating severity of GPR's allegations.
C. Report 3: "Double Down on Fraud: Redstone's Related-Party Shell Game" (February 21, 2024)
On February 21, 2024, GPR published its third and final report, a 29-page document titled "Double Down on Fraud: Redstone's Related-Party Shell Game." The report was published through the same channels as the first two reports.
The central allegation of Report 3 was that RGC's CEO, Marcus J. Calloway, had engaged in undisclosed related-party dealings with a purported shell entity called "Vermilion Holdings LLC." The report alleged that these dealings constituted a conflict of interest and a failure to disclose material related-party transactions in RGC's public filings.
The impact of Report 3 drove RDGM's stock price to its trough. On February 21, 2024, RDGM closed at $72.80 per share — a cumulative decline of $19.34 per share, or approximately 21.0%, from the pre-publication price of $92.14. At this trough price, the aggregate market-capitalization loss was staggering: $19.34 per share multiplied by 73.8 million shares outstanding equals approximately $1.427 billion in destroyed shareholder value.
As discussed in Section V below, discovery and subsequent investigation have established that the related-party allegation was based on incomplete information and was materially misleading. Critically, deposition testimony of Tobias Fenchurch himself revealed that he directed the publication of Report 3 before the research team had completed its verification of the Vermilion Holdings allegation — an admission that, standing alone, constitutes powerful evidence of reckless disregard for the truth.
D. The Coordinated Short-Selling Scheme
The three reports were not published in isolation or as the organic products of independent research. Rather, they were the carefully planned instrumentalities of a profit-driven trading strategy coordinated between GPR and its affiliated hedge fund, GPCP.
At the time of publication, GPCP held a short position in RDGM common stock of approximately 680,000 shares. At the pre-publication price of $92.14 per share, this short position had a notional value of approximately $62.66 million. Defendants stood to profit enormously from any decline in RDGM's share price.
The three reports were staggered at precisely one-week intervals — February 7, February 14, and February 21, 2024 — a deliberate publication cadence designed to maximize and sustain downward selling pressure on RDGM's stock. Each successive report escalated the severity of the allegations, compounding the market's alarm and driving the stock price lower in a stepwise fashion. This staggered release strategy prevented the stock from recovering between publications and ensured a sustained decline that maximized the profitability of GPCP's short position.
By approximately mid-March 2024, after RDGM's stock price had been driven down to the trough level, Defendants closed their short position at an estimated average price of $72.80 per share, generating an estimated gross short-sale profit of ($92.14 − $72.80) × 680,000 shares, or approximately $13.15 million.
The publication schedule, the relationship between GPR and GPCP, and the timing of the short-position closure collectively demonstrate that the three GPR reports were not legitimate financial journalism or good-faith research. They were calculated instruments of a scheme to manipulate RGC's stock price downward in order to profit from a massive pre-existing short position.
V. THE FALSITY OF THE REPORTS
Each of the three categories of allegations contained in the GPR reports has been independently and affirmatively disproven. The evidence of falsity is not based solely on RGC's own statements or denials; rather, it rests on the findings of independent auditors, government regulators, and the sworn testimony of Defendants' own personnel.
A. Revenue-Fabrication Allegation — Unfounded
GPR's Report 1 alleged that approximately $410 million of RGC's FY 2023 revenue of $3.42 billion had been fabricated through fictitious intercompany transactions. This allegation was false and unfounded.
RGC's independent auditor, Pinnacle Audit & Advisory LLP, with engagement partner Walter Ng, CPA, has served as RGC's independent auditor for multiple years and has issued unqualified (clean) audit opinions on RGC's consolidated financial statements for fiscal years 2021, 2022, and 2023. An unqualified audit opinion represents the highest level of assurance an independent auditor can provide, signifying that the financial statements are presented fairly in all material respects in accordance with generally accepted accounting principles. Pinnacle's FY 2023 audit was conducted in accordance with generally accepted auditing standards and included procedures specifically designed to detect material misstatements, including those resulting from fraud.
Upon the publication of Report 1, and in response to the market disruption caused by GPR's allegations, Pinnacle conducted a supplemental forensic audit engagement at a cost of $1.46 million. This supplemental engagement was specifically focused on the revenue items and intercompany transactions identified in GPR's report. The results of the supplemental forensic audit confirmed the accuracy and completeness of RGC's reported revenue figures. Pinnacle found no evidence of fictitious intercompany transactions, revenue fabrication, or any other irregularity in RGC's revenue recognition.
Critically, at no point before publishing Report 1 did GPR, Fenchurch, or Lin contact Pinnacle Audit & Advisory, RGC's CFO Priya Ramaswaran, or any other member of RGC management to verify the revenue-fabrication claim. A responsible financial researcher alleging $410 million in fabricated revenue at a publicly traded company with audited financials would, at minimum, seek to understand the basis for the auditor's unqualified opinion or offer the company an opportunity to respond to the allegations. Defendants did neither.
B. RNG-Manipulation Allegation — Disproven by Regulators
GPR's Report 2 alleged that RGC had manipulated its proprietary RNG software to inflate payout statistics reported to the Nevada Gaming Control Board. This allegation was false and has been conclusively disproven by the relevant regulatory authority.
On March 29, 2024, the Nevada Gaming Control Board completed an independent audit of RGC's RNG systems. The Board's audit was conducted by the Board's Technology Division using its own testing protocols and equipment. The Board's findings conclusively cleared RGC of any irregularities in its RNG software, its payout calculations, or its regulatory reporting. The Board found no evidence of manipulation, tampering, or misrepresentation of any kind.
This regulatory exoneration is significant not only because it disproves the substance of GPR's allegation, but because it comes from the very regulatory body that GPR's report accused RGC of deceiving. The Nevada Gaming Control Board is among the most rigorous and sophisticated gaming regulators in the world, and its independent finding of no irregularities carries substantial weight.
The deposition testimony of Ava Lin, taken on August 29, 2024, further underscores the irresponsibility of the RNG-manipulation allegation. Lin confirmed that she did not contact the Nevada Gaming Control Board or any independent RNG testing laboratory before publishing Report 2. She acknowledged that her analysis relied on incomplete data and that she drew speculative inferences to construct the RNG-manipulation narrative. Lin's own testimony demonstrates that the allegation was built on an inadequate foundation that would not withstand scrutiny, and that Defendants knew or should have known that their analysis was insufficient to support the incendiary claims they published.
C. Related-Party Allegation — Misleading and Based on Incomplete Information
GPR's Report 3 alleged that RGC's CEO, Marcus J. Calloway, had engaged in undisclosed related-party dealings with an entity called "Vermilion Holdings LLC." This allegation was misleading and was based on incomplete information that Defendants chose not to verify before publication.
Discovery and investigation in this case have established that GPR's characterization of the relationship between Calloway and Vermilion Holdings LLC was materially misleading. The allegation omitted critical context and was based on a superficial and incomplete analysis that GPR's own research team recognized as deficient before publication.
Most damning is the deposition testimony of Tobias Fenchurch, taken on August 20, 2024. Fenchurch revealed under oath that he instructed that Report 3 be published before the research team had completed its verification of the Vermilion Holdings allegation. In other words, Fenchurch made a conscious decision to publish an accusation of undisclosed related-party fraud against the CEO of a publicly traded company before his own team had finished determining whether the accusation was accurate. This testimony, standing alone, constitutes compelling evidence of reckless disregard for the truth.
Further bolstering this point, internal Meridian Solutions messages produced in discovery show that Ava Lin herself expressed doubts about the related-party allegations prior to publication. These internal communications — written by the co-author of the very report in question — demonstrate that Defendants were not merely negligent or careless, but were aware of significant uncertainty about the veracity of their allegations and chose to publish regardless.
D. SEC Inquiry — Closed With No Action
Following the publication of the three GPR reports, the U.S. Securities and Exchange Commission opened an informal inquiry into RGC in March 2024. This inquiry was a direct consequence of the market disruption caused by GPR's publications and the resulting public attention to allegations of financial fraud at a publicly traded company.
On August 16, 2024, the SEC closed its inquiry with no action. The SEC did not initiate any enforcement proceedings, issue any findings of wrongdoing, or impose any sanctions or remedial measures against RGC, its officers, or any of its affiliates.
The closure of the SEC inquiry with no action constitutes a significant exoneration of RGC. The SEC possesses broad investigative authority and sophisticated analytical resources. The fact that the SEC — after conducting its own independent review of the matters raised by GPR's publications — found no basis to pursue any action confirms the baselessness of GPR's fraud allegations and further undermines Defendants' already untenable position.
Taken together, the independent findings of Pinnacle Audit & Advisory, the Nevada Gaming Control Board, and the SEC constitute a comprehensive and unimpeachable refutation of every category of allegation in the GPR reports. No reasonable jury could conclude that Defendants' publications were accurate, and the weight of the independent evidence of falsity will be devastating at trial.
VI. ACTUAL MALICE
A. Legal Standard
Because this is a trade libel action involving a publicly traded company and matters of potential public interest, RGC bears the burden of proving actual malice under the standard established in New York Times Co. v. Sullivan, 376 U.S. 254 (1964), and its progeny. Under this standard, actual malice requires proof that the defendant published the defamatory statements with knowledge that they were false, or with reckless disregard for whether they were true or false. This is a subjective standard that focuses on the defendant's state of mind at the time of publication.
Judge Yamamoto has already addressed the sufficiency of RGC's actual-malice evidence on two occasions. In denying Defendants' anti-SLAPP motion on June 7, 2024, Judge Yamamoto specifically cited the sufficiency of the actual-malice evidence, finding that RGC had demonstrated a probability of prevailing on its claims. In denying Defendants' Motion for Summary Judgment on November 15, 2024, the court reaffirmed this finding, concluding that triable issues of material fact existed on all four causes of action, including the actual-malice element of the trade libel claim. These two rulings by the trial court establish that the evidence of actual malice in this case is not merely colorable — it is substantial, and it has withstood rigorous judicial scrutiny at two critical stages of the litigation.
B. Evidence of Actual Malice
The evidence of actual malice in this case is multifaceted and mutually reinforcing. It encompasses financial motive, a systematic failure to verify explosive allegations, internal communications reflecting pre-publication doubt, and awareness of contradictory evidence.
1. Financial Motive. GPCP's 680,000-share short position in RDGM, with a notional value of approximately $62.66 million at the time of publication, establishes a direct and powerful financial incentive to publish false negative reports about RGC. Defendants stood to gain — and in fact did gain — millions of dollars from any decline in RDGM's stock price.
The estimated short-sale profit of approximately $13.15 million constitutes direct economic benefit derived from the publication of the defamatory statements. While financial motive alone is not sufficient to establish actual malice, it is a highly relevant factor that provides context for Defendants' conduct and undercuts any claim that the reports were published in good faith. See Harte-Hanks Commc'ns, Inc. v. Connaughton, 491 U.S. 657, 668 (1989) (evidence of motive relevant to actual-malice inquiry).
Moreover, the staggered weekly release of the three reports — on February 7, 14, and 21, 2024 — was designed to sustain downward selling pressure on RDGM's stock over an extended period. This deliberate timing strategy is inconsistent with a good-faith effort to inform the public and is instead consistent with a calculated trading scheme designed to maximize profits from the short position.
2. Failure to Verify. The evidence demonstrates that Defendants engaged in a systematic and deliberate failure to verify their most serious allegations before publication.
Neither Fenchurch nor Lin contacted RGC management, Pinnacle Audit & Advisory, or the Nevada Gaming Control Board before publishing any of the three reports. These are the three most obvious and readily available sources that any responsible researcher would consult before publishing accusations of revenue fabrication (the auditor), RNG manipulation (the regulatory body), and related-party misconduct (the company's management).
Ava Lin acknowledged in her deposition, taken on August 29, 2024, that she relied on incomplete data for the RNG-manipulation allegations in Report 2 and that she did not contact the Nevada Gaming Control Board or any independent RNG testing laboratory before publication. Lin's acknowledgment that her data was incomplete is significant because it demonstrates that Defendants were aware of the limitations of their analysis yet chose to publish inflammatory accusations without taking the basic step of seeking to verify them.
Tobias Fenchurch admitted in his deposition, taken on August 20, 2024, that he was aware that Pinnacle Audit & Advisory had issued clean, unqualified audit opinions on RGC's consolidated financial statements for FY 2021 through FY 2023. Despite this awareness — despite knowing that an independent auditor had examined RGC's books and found them to be fairly presented — Fenchurch published or directed the publication of a 48-page report accusing RGC of fabricating $410 million in revenue, without ever contacting Pinnacle or any other independent accounting expert to challenge or understand the basis for the auditor's opinion. The failure to investigate further in the face of contradictory evidence from a reputable auditor is a hallmark of reckless disregard for the truth. See St. Amant v. Thompson, 390 U.S. 727, 732 (1968).
3. Internal Communications Showing Doubt. Perhaps the most damaging evidence of actual malice consists of Defendants' own internal communications, obtained through discovery.
Internal Meridian Solutions messages produced in discovery reveal that Ava Lin — the co-author of the reports and the Senior Analyst at GPR — expressed doubts about the related-party allegations before the publication of Report 3. These are not ambiguous or offhand remarks; they reflect substantive concerns raised by the very analyst responsible for researching and drafting the report, and they were communicated to Fenchurch through GPR's internal communications channels.
Despite these expressed doubts, Fenchurch instructed that Report 3 be published before the research team had completed its verification of the Vermilion Holdings allegation. This directive — from the managing member of GPR and the individual who controlled the hedge fund holding the short position — demonstrates, at minimum, reckless disregard for the truth and potentially actual knowledge that the allegations were unfounded. A defendant who is told by his own analyst that the factual basis for an allegation is uncertain, and who nevertheless orders publication of that allegation before verification is complete, cannot credibly claim to have acted in good faith.
These internal communications will be powerful evidence at trial. A jury will see that Defendants' own analyst harbored doubts about the accuracy of the reports and that Defendants' principal overrode those doubts and ordered publication in service of the trading strategy.
4. Awareness of Clean Audit Opinions. Fenchurch testified in his deposition that he was aware that Pinnacle Audit & Advisory had issued unqualified opinions on RGC's consolidated financial statements for FY 2021, 2022, and 2023. Unqualified audit opinions represent the gold standard of assurance in the accounting profession, and they are issued only after the auditor has conducted extensive procedures designed to detect material misstatement, including misstatement resulting from fraud.
Despite this knowledge, GPR published revenue-fabrication allegations that, if true, would have meant that Pinnacle's audit opinions were fundamentally flawed — that the auditor had missed $410 million in fictitious revenue across multiple audit cycles. Any responsible researcher who intended to make such an extraordinary claim would, at minimum, conduct an independent investigation sufficient to identify specific failures in the audit process or specific transactions that the auditor missed. Defendants conducted no such investigation. They did not contact Pinnacle. They did not retain their own independent auditor or forensic accountant. They simply published the allegation and profited from the resulting stock-price decline.
The combination of awareness of the clean audit opinions, the failure to conduct any independent verification, and the financial incentive to publish creates a powerful mosaic of actual malice that will be compelling to a jury.
VII. DAMAGES
A. Plaintiff's Damages Expert — Dr. Elena Vostrikova
RGC retained Dr. Elena Vostrikova, Ph.D. (Financial Economics), to serve as its damages expert in this litigation. Dr. Vostrikova is a principal of Meridian Forensic Economics LLC, located at 1901 Avenue of the Stars, Suite 900, Los Angeles, California 90067. She was retained by Calderwood & Harkness on July 1, 2024, and her expert report was exchanged on September 9, 2024, in accordance with the court's scheduling order.
Dr. Vostrikova holds a Ph.D. in Financial Economics and has extensive experience in securities litigation and the quantification of damages arising from market manipulation, fraud, and defamatory publications affecting publicly traded companies. Her event-study methodology and damages analysis in this case are grounded in well-established principles of financial economics and are consistent with the methodologies accepted by courts throughout California and the federal system.
B. Market-Impact / Event-Study Analysis
The raw stock-price data tells the story of the destruction Defendants wrought:
With 73.8 million shares outstanding, the aggregate market-capitalization loss at the trough was $19.34 × 73,800,000 = approximately $1.427 billion.
However, raw market-capitalization loss overstates the damages attributable specifically to the GPR publications, because stock-price movements are influenced by range factors, including broader market trends, sector-specific dynamics, and company-specific news unrelated to the reports at issue. To isolate the portion of the stock-price decline attributable specifically to the false statements in the GPR reports, Dr. Vostrikova conducted a rigorous event-study analysis.
Dr. Vostrikova's event-study methodology employed standard econometric techniques to remove market-wide and sector-specific "beta effects" (i.e., market and sector noise) from the observed stock-price movements on the three publication dates. After controlling for these extraneous factors, Dr. Vostrikova's event-study analysis determined that the false statements in the three GPR reports were directly responsible for $327.6 million in shareholder value destruction.
Dr. Vostrikova's $327.6 million figure represents the damages attributable specifically and solely to the GPR publications, net of any contemporaneous market or sector movements. It is the most reliable and conservative measure of the harm caused by Defendants' misconduct and the measure that RGC expects to present to the jury at trial.
It should also be noted that as of November 2024, RGC's market capitalization has recovered to approximately $6.1 billion, compared to its pre-publication level of approximately $6.8 billion. This means that approximately $700 million in market value remains unrecovered — a continuing reflection of the lingering reputational damage caused by Defendants' false reports.
C. Out-of-Pocket Costs
In addition to the shareholder-value destruction measured by Dr. Vostrikova's event study, RGC incurred substantial direct out-of-pocket costs as a direct result of the GPR publications. These costs were necessary and reasonable expenditures undertaken to respond to the false allegations, protect RGC's reputation and regulatory standing, and restore market confidence. The out-of-pocket costs are itemized as follows:
Each of these expenditures was a direct and proximate consequence of the GPR publications. Absent the false reports, RGC would not have needed to retain a crisis communications firm, would not have needed to commission a supplemental forensic audit, and would not have incurred additional legal fees to respond to regulatory inquiries triggered by the reports. These out-of-pocket costs are recoverable as special damages in RGC's trade libel claim.
D. Defendants' Short-Sale Profits (Disgorgement Basis)
Defendants' own profits from the scheme provide an independent basis for damages or disgorgement. As detailed above, GPCP closed its 680,000-share short position by approximately mid-March 2024 at an estimated average price of $72.80 per share, having established the position at or near the pre-publication price of $92.14 per share.
The estimated gross short-sale profit is calculated as follows:
($92.14 − $72.80) × 680,000 shares = $19.34 × 680,000 = approximately $13.15 million
This profit was derived directly and exclusively from the publication of the defamatory reports and the resulting decline in RDGM's stock price. Under California law, unjust enrichment and restitutionary principles provide a basis for disgorgement of profits obtained through wrongful conduct, independent of and in addition to compensatory damages. At minimum, any resolution of this case should ensure that Defendants do not retain the profits generated by their misconduct.
E. Summary of Damages Exposure for Defendants
The following table summarizes Defendants' total potential damages exposure:
Given the clear and convincing evidence of actual malice — including financial motive, deliberate failure to verify, internal communications showing pre-publication doubt, and the directive to publish before verification was complete — California law permits an award of punitive damages. See Cal. Civ. Code § 3294. Punitive damages are awarded to punish the defendant and deter similar conduct, and they may be a substantial multiple of compensatory damages, particularly where, as here, the defendant's conduct was motivated by financial gain and demonstrated a conscious disregard for the rights and interests of others.
At trial, Defendants face total potential exposure that exceeds $345 million in compensatory and restitutionary damages alone, before any award of punitive damages. This is a catastrophic risk for Defendants, and it underscores the importance of reaching a fair resolution at mediation.
VIII. DEFENDANTS' FINANCIAL CAPACITY
An assessment of Defendants' financial capacity is relevant to evaluating the range of achievable monetary settlements. Based on information obtained through discovery, public filings, and third-party sources, the following is known:
Grizzly Peak Research LLC. GPR's estimated cash and receivables as of year-end 2024 are approximately $22 million. While this represents a meaningful asset base, it is a small fraction of the damages exposure discussed above and would be insufficient, standing alone, to fund a settlement that adequately compensates RGC.
Grizzly Peak Capital Partners LP. GPCP's estimated assets under management are approximately $185 million. The availability of these assets to fund a settlement or satisfy a judgment is subject to the terms of GPCP's limited partnership agreement and the rights of its limited partners, but the AUM figure provides an indication of the scale of the capital controlled by Fenchurch and the Grizzly Peak enterprise.
Insurance Coverage. GPR maintains directors and officers / media-liability insurance coverage through Ironclad Surety & Insurance Co., located at 200 Park Avenue South, 14th Floor, New York, New York 10003. The policy is identified as Policy No. ML-2023-07714. The claims adjuster assigned to this matter is Daniel Royce at Ironclad.
The specific terms and limits of the Ironclad policy are relevant to the settlement discussions and are anticipated to be a significant factor in the mediation. Insurance coverage of this type typically provides for both the payment of defense costs and the funding of settlements or judgments, subject to policy limits, deductibles, and coverage conditions. RGC expects that Ironclad's coverage will be a critical source of settlement funding and that the policy limits will be a significant factor in determining the range of achievable monetary outcomes.
The combined capacity of GPR's own assets (approximately $22 million), GPCP's assets under management (approximately $185 million), and the coverage available under the Ironclad policy will collectively determine what level of monetary settlement is achievable. RGC is prepared to engage in a realistic assessment of collectibility during the mediation and to structure a settlement that accounts for Defendants' financial capacity while still achieving meaningful compensation.
IX. LITIGATION RISK ASSESSMENT FOR DEFENDANTS
A. Two Threshold Motions Already Defeated
The procedural history of this case provides an unusually clear signal of Defendants' trial risk. Both of Defendants' primary dispositive challenges have been rejected by the court.
First, Defendants' anti-SLAPP motion was denied on June 7, 2024. The anti-SLAPP statute provides a powerful procedural mechanism for defendants in defamation-related actions, and its denial — particularly based on a finding that the plaintiff's actual-malice evidence was sufficient — is a significant indicator that the court views the evidence as favoring the plaintiff.
Second, Defendants' Motion for Summary Judgment was denied on November 15, 2024. Summary judgment is the final opportunity before trial to eliminate claims as a matter of law, and the denial of summary judgment on all four causes of action confirms that the court has found triable issues of material fact on every element of every claim. Defendants will face a jury with no procedural shields remaining.
B. Trial Risks for Defendants
Defendants face substantial and specific trial risks that should weigh heavily in their assessment of the case:
Jury Composition and Sympathies. This case will be tried before a jury in Los Angeles County. A Los Angeles jury is likely to be attentive to the dynamics of a case in which a short-selling hedge fund published fabricated allegations about a gaming company that employs thousands of workers across multiple states. The narrative of Wall Street profiteers manufacturing fraud allegations to drive down a stock price and pocket $13 million in short-selling profits is inherently compelling and likely to generate significant jury sympathy for RGC.
Punitive Damages Risk. The actual-malice evidence in this case — financial motive, deliberate failure to verify, internal communications showing doubt, and the directive to publish before verification — is sufficient to support a punitive damages award under California's clear-and-convincing standard. Punitive damages are inherently unpredictable and could represent a substantial multiple of compensatory damages. This risk alone should give Defendants pause.
Regulatory Vindication. The Nevada Gaming Control Board's independent clearance of RGC's RNG systems (March 29, 2024) and the SEC's closure of its inquiry with no action (August 16, 2024) will be powerful trial evidence. These regulatory findings, from authoritative and independent government bodies, powerfully corroborate the falsity of the GPR reports and will be among the most compelling exhibits presented to the jury. Defendants will have great difficulty persuading a jury that their allegations were accurate when two independent government regulators have concluded otherwise.
Defendants' Own Internal Communications. The Meridian Solutions messages in which Ava Lin expressed doubts about the related-party allegations before publication will be devastating at trial. Internal communications reflecting pre-publication doubt are among the most powerful categories of evidence in actual-malice cases, and they are particularly impactful with juries because they demonstrate the defendant's own awareness of problems with the accuracy of its reporting.
Fenchurch's Deposition Admission. Fenchurch's deposition admission that he directed the premature publication of Report 3 — before the research team had completed its verification — is a devastating fact for the defense. This admission will be played for the jury and is likely to be a centerpiece of RGC's trial presentation. It is difficult to imagine a more damaging piece of evidence in an actual-malice case than the defendant's own admission that he ordered publication before verification was complete.
C. Defendants' Exposure
In sum, Defendants face:
• Substantial compensatory damages, with Dr. Vostrikova's event-study quantifying $327.6 million in shareholder losses directly attributable to the false reports, plus $4.627 million in out-of-pocket costs.
• Significant punitive damages risk, based on clear and convincing evidence of actual malice.
• Potential permanent injunctive relief that would curtail GPR's future operations with respect to RGC and prohibit Defendants from trading in RDGM securities.
• Reputational damage to GPR's research franchise from a public verdict finding that its reports were knowingly false or published with reckless disregard for the truth. Such a verdict would undermine GPR's credibility with its subscriber base and the broader financial community.
The totality of Defendants' exposure — financial, operational, and reputational — strongly counsels in favor of a mediated resolution.
X. RGC'S SETTLEMENT OBJECTIVES
RGC approaches this mediation with clearly defined settlement objectives. RGC seeks a comprehensive resolution that addresses the full scope of the harm caused by Defendants' misconduct, including monetary compensation, corrective public statements, and permanent injunctive relief.
A. Monetary Compensation
RGC seeks a monetary payment that meaningfully compensates for the damages caused by Defendants' false publications and that includes disgorgement of Defendants' short-sale profits. RGC is realistic about the relationship between damages exposure and collectibility, but several principles guide its monetary objectives:
First, at minimum, any settlement amount must exceed GPR's estimated short-sale profit of approximately $13.15 million. A settlement that permits Defendants to retain the profits of their wrongdoing would not serve the purposes of either compensation or deterrence and would be fundamentally inadequate.
Second, the settlement amount should cover RGC's out-of-pocket costs of $4.627 million, which represent actual, documented expenditures that RGC was forced to incur as a direct result of the false reports.
Third, the settlement amount should include a substantial component reflecting the broader damages caused to RGC and its shareholders, taking into account the event-study-adjusted losses of $327.6 million and the significant punitive damages risk. While RGC recognizes that no achievable settlement will fully compensate for the full measure of shareholder losses, a meaningful monetary component — one that reflects the severity of Defendants' misconduct and the strength of the evidence — is essential to any resolution.
Fourth, the settlement amount should reflect a substantial portion of RGC's attorney fees and litigation costs, which have been significant given the scope and complexity of this case.
B. Corrective Statements
A monetary payment alone cannot remedy the reputational harm caused by three widely disseminated reports accusing RGC of financial fraud, regulatory manipulation, and related-party misconduct. Corrective public statements are an essential component of any acceptable settlement.
RGC requires that GPR publish a corrective statement on grizzlypeakresearch.com, in the form of a dedicated page or article of not fewer than 1,500 words, acknowledging the following:
(a) That the three reports published in February 2024 — "House of Cards: Redstone Gaming's Manufactured Earnings," "Rigged Reels: How Redstone's Slot Software Cheats the Regulators," and "Double Down on Fraud: Redstone's Related-Party Shell Game" — contained material inaccuracies;
(b) That the revenue-fabrication allegation — alleging that approximately $410 million of RGC's FY 2023 revenue was fabricated through fictitious intercompany transactions — was unfounded;
(c) That the RNG-manipulation allegation was disproven by the Nevada Gaming Control Board's independent audit, which conclusively cleared RGC of any irregularities; and
(d) That the related-party allegation regarding Vermilion Holdings LLC was based on incomplete information and was misleading.
The corrective publication must remain posted on grizzlypeakresearch.com for a period of not less than twenty-four (24) months from the date of initial posting, and must be accessible from the website's homepage or main navigation.
In addition, GPR must post a summary corrective statement of not fewer than 280 characters on the @GrizzlyPeakRes social media account, linking to the full corrective publication on grizzlypeakresearch.com. Both the full corrective publication and the social media summary must be posted within five (5) business days of the effective date of any settlement agreement.
The text of both corrective statements shall be subject to mutual approval of the parties, with any disputes regarding the language to be resolved by the Mediator (or, if the Mediator declines, by the court).
C. Permanent Injunctive Relief
RGC seeks permanent injunctive relief, to be entered by stipulation and order of the court, containing the following terms:
(a) A permanent injunction prohibiting Defendants, and all persons acting in concert with them, from republishing the three reports at issue or any substantially similar statements about RGC;
(b) A permanent injunction prohibiting Defendants, and all persons acting in concert with them, from trading in RDGM securities (including common stock, options, and other derivatives) for a period of five (5) years from the effective date of the settlement agreement.
These injunctive terms are necessary to prevent Defendants from continuing to profit from or disseminate the false reports and to protect RGC from a repetition of the conduct that gave rise to this litigation.
D. Additional Non-Monetary Terms
RGC proposes the following additional non-monetary terms as part of a comprehensive settlement:
(a) Mutual Releases. The parties shall exchange mutual general releases of all claims arising from the publications at issue and the litigation, with appropriate carve-outs for obligations arising under the settlement agreement itself, including the corrective-statement, injunctive, and monetary-payment obligations.
(b) Mutual Non-Disparagement. The parties shall agree to a mutual non-disparagement clause with a term of three (3) years from the effective date of the settlement agreement, under which neither party shall make public statements disparaging the other in connection with the subject matter of this litigation.
(c) Confidentiality. The monetary terms of the settlement shall be confidential. The existence of the settlement and the corrective statements shall be non-confidential, as the corrective purpose of the settlement requires public disclosure.
(d) Stipulated Dismiss