CALDERWOOD & HARKNESS LLP Attorneys at Law
333 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 555-7200 Facsimile: (213) 555-7201 www.calderwoodharkness.com
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Derek Olafson, General Counsel, Redstone Gaming Corp. Marcus J. Calloway, CEO, Redstone Gaming Corp.
FROM: Francesca Morano, Responsible Partner, Calderwood & Harkness LLP
DATE: November 20, 2024
RE: Pre-Mediation Strategy — Redstone Gaming Corp. v. Grizzly Peak Research LLC et al., Case No. 24STCV-01892, Superior Court of California, County of Los Angeles
CC: Samuel Eklund, Carlos Espinoza, Hannah Brinkley (Calderwood & Harkness LLP)
I. Purpose and Executive Summary
This memorandum provides a comprehensive analysis of Redstone Gaming Corp.'s ("RGC" or the "Company") settlement posture and recommended negotiation strategy in advance of the two-day mediation currently 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. The purpose of this memorandum is to synthesize the factual record, evaluate the strengths and risks of the litigation, provide a damages framework, analyze the defendants' financial capacity and insurance coverage, recommend specific settlement terms, and outline the tactical approach we intend to deploy at the mediation table. This memorandum is intended to enable RGC's leadership to make an informed decision regarding settlement authority prior to the mediation.
As of the date of this memorandum, the litigation is in a posture that is highly favorable to RGC. All four causes of action asserted in the First Amended Complaint survive and are poised for trial. Specifically, RGC's claims for trade libel under California Civil Code § 46(3), intentional interference with prospective economic advantage, unfair business practices under California Business and Professions Code § 17200, and negligent misrepresentation have each withstood defendants' procedural challenges. The defendants' anti-SLAPP motion under California Code of Civil Procedure § 425.16 was denied by Judge Patricia Yamamoto on June 7, 2024, with the Court finding that RGC had presented sufficient evidence of actual malice — including Grizzly Peak Research LLC's ("GPR") substantial short position and internal communications demonstrating awareness that GPR's revenue-fabrication allegations were unsupported — to defeat the motion. More recently, defendants' motion for summary judgment, filed October 22, 2024, was denied on November 15, 2024, with the Court concluding that triable issues of material fact exist on falsity, actual malice, and causation across all four causes of action. These rulings place RGC in a commanding position as it enters mediation.
Based on our thorough review of the evidentiary record, the applicable law, the expert analyses, and the practical realities of collection, we recommend that RGC pursue a settlement in the range of $12 million to $18 million in monetary terms, together with corrective statements acknowledging the material inaccuracies in all three of GPR's published reports and permanent injunctive relief — including a prohibition on republication of the false reports and a five-year bar on defendants' trading in RDGM securities. At the same time, we recommend that RGC maintain active trial preparation throughout the mediation process, both because a credible threat of trial is the most effective lever in any negotiation and because a favorable trial outcome remains a realistic alternative if defendants refuse to offer terms within our recommended range.
This memorandum addresses the following topics in detail:
(A) The strengths of RGC's case, including the falsity of GPR's reports, the evidence of actual malice, the significant stock-price impact, and the favorable expert and regulatory evidence;
(B) The litigation risks that RGC faces, including the actual-malice burden of proof, First Amendment defenses, damages causation complexity, trial cost and duration, and collection and appellate risk;
(C) The damages framework, including Dr. Elena Vostrikova's event-study analysis and RGC's out-of-pocket costs;
(D) The defendants' financial capacity and insurance coverage, including GPR's assets, Grizzly Peak Capital Partners LP's ("GPCP") fund assets, Tobias Fenchurch's individual exposure, and coverage under the Ironclad Surety & Insurance Co. media-liability policy;
(E) The recommended settlement terms, both monetary and non-monetary; and
(F) The mediation logistics and tactical approach, including the concession strategy and anticipated defense positions.
We are confident that the mediation presents a genuine opportunity to achieve a resolution that fully vindicates RGC's interests and provides meaningful accountability for defendants' misconduct.
II. Procedural History and Current Status
A. Case Filing and Pleadings
RGC commenced this action on February 5, 2024, by filing a Complaint in the Superior Court of California, County of Los Angeles, asserting three causes of action against Grizzly Peak Research LLC: (1) trade libel under California Civil Code § 46(3); (2) intentional interference with prospective economic advantage; and (3) unfair business practices under California Business and Professions Code § 17200 (the "UCL"). The Complaint was filed promptly in response to the first of three successive reports published by GPR, all of which contained false and defamatory statements concerning RGC's business operations, financial reporting, and regulatory compliance.
On March 18, 2024, RGC filed a First Amended Complaint (the "FAC"), which expanded the scope of the litigation in two important respects. First, the FAC added Grizzly Peak Capital Partners LP and Tobias "Toby" Fenchurch, individually, as defendants. GPCP is the affiliated hedge fund that maintained the short position in RDGM shares from which the defendants profited when RGC's stock price declined following publication of the three reports. Fenchurch is GPR's founder, managing director, and the sole managing member of Grizzly Peak Capital GP LLC, the general partner of GPCP. Second, the FAC added a fourth cause of action for negligent misrepresentation, based on GPR's failure to exercise reasonable care in verifying the accuracy of the statements in its reports before publishing them to the market. The FAC remains the operative pleading in this case.
Defendants filed their Answer to the FAC on April 5, 2024, asserting affirmative defenses including, among others, truth and substantial truth, opinion, fair comment, First Amendment protection, and the litigation privilege. None of these affirmative defenses has, to date, been validated by the Court.
B. Key Motions
Two dispositive motions have been filed and decided in this case, both in RGC's favor.
Anti-SLAPP Motion. On April 12, 2024, defendants filed a special motion to strike under California Code of Civil Procedure § 425.16 (the "anti-SLAPP motion"), arguing that all four of RGC's causes of action arose from protected activity — namely, GPR's publication of its reports, which defendants characterized as constitutionally protected speech on matters of public interest regarding a publicly traded company. Judge Patricia Yamamoto denied the anti-SLAPP motion on June 7, 2024, in a comprehensive ruling. While the Court accepted, for purposes of the first prong of the anti-SLAPP analysis, that GPR's reports addressed issues of public interest in the securities markets, the Court found that RGC had demonstrated a probability of prevailing on the merits — the second prong — by presenting sufficient evidence of actual malice. The Court specifically cited two categories of evidence in its ruling: (i) GPR's financial motive, as evidenced by its 680,000-share short position in RDGM with a notional value of approximately $62.66 million at the time of publication, and (ii) internal communications produced in discovery that demonstrated GPR's awareness that its revenue-fabrication allegations were unsupported by adequate evidence. The denial of the anti-SLAPP motion was a significant early victory that signaled the Court's view of the strength of RGC's evidence.
Motion for Summary Judgment. On October 22, 2024, defendants filed a motion for summary judgment, or in the alternative, summary adjudication, arguing that RGC could not establish falsity, actual malice, or causation as a matter of law with respect to any of the four causes of action. On November 15, 2024, Judge Yamamoto denied the motion in its entirety. The Court found that triable issues of material fact exist on all three contested elements — falsity, actual malice, and causation — across all four causes of action. The Court noted, among other things, that RGC's expert testimony on damages causation created a genuine dispute that must be resolved by the trier of fact, and that the evidence of actual malice, including Fenchurch's deposition admissions regarding the timing of publication relative to his verification efforts, was sufficient to preclude summary judgment. This ruling, issued just five days before the date of this memorandum, represents the most recent and significant judicial validation of RGC's case.
C. Discovery Phase
The parties conducted extensive discovery between June and November 2024. The discovery phase has been intensive and has yielded a substantial evidentiary record that strongly favors RGC.
Depositions. A total of fourteen (14) depositions have been completed in this case. Among the most critical depositions were those of Tobias Fenchurch, taken on August 20, 2024, and Ava Lin, GPR's senior analyst and co-author of all three reports, taken on August 29, 2024. The testimony elicited at these depositions is discussed in detail in Section III.B below, as it provides key evidence of actual malice. Other depositions included RGC's CEO Marcus J. Calloway, CFO Priya Ramaswaran, and various third-party witnesses, including former GPR analysts and representatives of entities referenced in the reports.
Document Production. Both sides have produced approximately 87,000 documents in the course of discovery, including internal GPR communications (e-mails, Meridian Solutions messages, and memoranda), RGC's financial records, audit work papers, regulatory filings, and trading records for GPR and GPCP. GPR's internal Brightmoor Data Systems have been particularly illuminating and constitute some of the strongest evidence of actual malice in the record.
discovery Disputes. Three discovery motions were filed and resolved during the discovery phase. These disputes primarily involved GPR's objections to producing certain internal communications on work-product and trade-secret grounds, arguments that were largely rejected by the Court.
Expert Reports. Expert reports were exchanged on September 9, 2024. RGC's damages expert, Dr. Elena Vostrikova of Meridian Forensic Economics LLC, submitted a detailed event-study analysis quantifying the stock-price impact of GPR's publications. Defendants' expert, whose rebuttal report is discussed in Section IV.C below, has challenged aspects of Dr. Vostrikova's methodology, but the Court found at summary judgment that these challenges raised factual issues for the jury, not grounds for exclusion.
D. Regulatory Outcomes Favorable to RGC
Three separate regulatory or audit processes have concluded since the filing of this action, each of which has produced results that directly contradict the central allegations in GPR's reports and significantly bolster RGC's position.
Nevada Gaming Control Board RNG Audit. In response to the allegations in GPR's second report ("Rigged Reels"), the Nevada Gaming Control Board undertook an independent audit of RGC's random-number-generator ("RNG") software. That audit was completed on March 29, 2024, and cleared RGC's systems of any irregularity. The Board's findings directly and conclusively refute GPR's allegation that RGC manipulated its RNG software to inflate payout statistics reported to regulators.
SEC Informal Inquiry. In March 2024, the Securities and Exchange Commission opened an informal inquiry into the allegations contained in GPR's reports, particularly the revenue-fabrication and related-party allegations. That inquiry was closed on August 16, 2024, with no enforcement action taken against RGC. The closure of the SEC inquiry without action is powerful evidence that the federal securities regulator, after its own independent review, found no basis to credit GPR's allegations.
Supplemental Forensic Audit. RGC engaged Pinnacle Audit & Advisory LLP (engagement partner Walter Ng, CPA) to conduct a supplemental forensic audit of RGC's FY 2023 revenue figures. Pinnacle, which also serves as RGC's independent auditor and has issued clean audit opinions for FY 2021 through FY 2023, confirmed the accuracy of RGC's reported revenue through the supplemental forensic engagement. This further undermines GPR's central allegation that RGC fabricated approximately $410 million in FY 2023 revenue.
Taken together, these regulatory and audit outcomes provide independent, authoritative confirmation of the falsity of GPR's allegations and significantly strengthen RGC's position both at mediation and at trial.
III. Strengths of RGC's Case
A. Falsity of All Three GPR Reports
RGC's case rests on the demonstrable falsity of the core factual assertions contained in all three reports published by GPR in rapid succession during the three-week period from February 7 to February 21, 2024. Each report is addressed in turn below.
Report 1 — "House of Cards: Redstone Gaming's Manufactured Earnings" (Published February 7, 2024; 48 pages). The first and most damaging of the three reports alleged that RGC fabricated approximately $410 million in FY 2023 revenue through fictitious intercompany transactions designed to inflate the Company's top-line revenue and profitability metrics. This allegation struck at the very foundation of RGC's financial credibility. The report purported to identify specific intercompany transactions that it characterized as lacking economic substance, and it accused RGC's management of intentionally misleading investors and auditors regarding the Company's true financial performance.
This allegation has been comprehensively refuted. Pinnacle Audit & Advisory LLP, RGC's independent auditor, issued clean audit opinions for FY 2021, FY 2022, and FY 2023, none of which have been withdrawn or qualified. In addition, the supplemental forensic audit engagement specifically examined the intercompany transactions identified in GPR's report and confirmed their legitimacy. RGC's FY 2023 revenue of $3.42 billion and EBITDA of $812 million (an approximately 23.7% margin) are fully audited and verified. GPR's allegation of $410 million in fabricated revenue was, and remains, entirely without foundation.
Report 2 — "Rigged Reels: How Redstone's Slot Software Cheats the Regulators" (Published February 14, 2024; 36 pages). One week after the first report, GPR published its second report, which shifted the attack to RGC's gaming technology. This report alleged that RGC had manipulated its random-number-generator software to inflate the payout statistics reported to the Nevada Gaming Control Board, effectively accusing RGC of defrauding its gaming regulators and, by extension, its casino patrons. The allegation, if true, would have threatened RGC's gaming licenses and the very foundation of its business operations.
This allegation was disproven by the Nevada Gaming Control Board's independent RNG audit, completed March 29, 2024. The Board — the gold-standard regulatory authority for gaming technology integrity — examined RGC's RNG systems and found no evidence of manipulation. The Board's findings constitute an authoritative, independent refutation of GPR's claims by the very regulatory body that GPR accused RGC of deceiving.
Report 3 — "Double Down on Fraud: Redstone's Related-Party Shell Game" (Published February 21, 2024; 29 pages). The third and final report alleged undisclosed related-party dealings between CEO Marcus J. Calloway and a purported shell entity, Vermilion Holdings LLC. The report characterized these dealings as self-enrichment by Calloway at the expense of RGC's shareholders, and it accused RGC of failing to disclose material related-party transactions in its SEC filings.
Investigation and the subsequent SEC inquiry revealed that this allegation was based on incomplete information and was materially misleading. The SEC's informal inquiry into this allegation was closed without action on August 16, 2024, reflecting the SEC's determination that no violation of the federal securities laws had occurred. Moreover, as discussed in Section III.B below, Fenchurch admitted in his deposition that he instructed publication of this report before completing verification of the Vermilion Holdings allegation — a critical admission bearing on actual malice.
All three reports were published on GPR's website, grizzlypeakresearch.com, and were simultaneously disseminated via the @GrizzlyPeakRes social media account, which had approximately 142,000 followers at the time of publication. The coordinated, high-visibility publication strategy ensured maximum dissemination to market participants and maximum damage to RGC's stock price and reputation.
B. Evidence of Actual Malice
The evidence of actual malice in this case is unusually strong and multi-faceted. Actual malice — knowledge that a statement is false or reckless disregard as to its truth or falsity — is the governing standard for RGC's trade libel and related claims as a public company. The evidence supporting an actual-malice finding includes the following:
Financial Motive — 680,000-Share Short Position. At the time it published all three reports, GPR and its affiliated fund, GPCP, maintained a combined short position of 680,000 shares of RDGM. At the pre-publication closing price of $92.14 per share, this short position had a notional value of approximately $62.66 million. GPR thus stood to profit enormously — and did profit enormously — from a decline in RDGM's stock price. This financial incentive provides powerful circumstantial evidence of actual malice, as it establishes that GPR had a direct and substantial financial motive to publish false or misleading statements that would drive down the price of RDGM shares. While financial motive alone does not establish actual malice, it is highly probative when combined with the other evidence described below.
Fenchurch Deposition Admissions. During his deposition on August 20, 2024, Tobias Fenchurch admitted that he instructed the publication of Report 3 (the Vermilion Holdings report) before GPR's research team had completed its verification of the related-party allegations. Specifically, Fenchurch acknowledged that he was aware that the team had not yet confirmed the nature and extent of Calloway's relationship with Vermilion Holdings at the time he directed publication. This admission is devastating to defendants' defense and constitutes direct evidence of reckless disregard for the truth — the hallmark of actual malice.
Ava Lin Deposition Testimony and Internal Communications. Ava Lin, GPR's senior analyst and co-author of all three reports, provided critical testimony in her deposition on August 29, 2024. Lin acknowledged that she did not contact the Nevada Gaming Control Board before publishing the RNG-manipulation allegations in Report 2 — a remarkable admission given that the Board is the definitive authority on the integrity of gaming technology in Nevada and could have confirmed or denied the allegations. Additionally, internal Meridian Solutions messages produced in discovery reveal that Lin herself expressed doubts about the related-party allegations in Report 3 prior to publication. In one particularly significant exchange, Lin wrote to a colleague that the Vermilion Holdings connection was "thin" and that she was "not comfortable" with the level of verification that had been completed. Despite these documented misgivings, the report was published on schedule, driven by Fenchurch's directive.
Short-Position Disclaimers. GPR included standard disclaimers in each of its reports disclosing its short position in RDGM. Ironically, rather than insulating GPR from liability, these disclaimers actually bolster our actual-malice showing by providing a contemporaneous admission of GPR's financial motive. The disclaimers confirm that GPR was fully aware, at the time of publication, that it stood to profit from a decline in RDGM's stock price — the very outcome that its false reports were designed to produce.
Internal Communications Reflecting Awareness of Evidentiary Gaps. Beyond Lin's Meridian Solutions messages, additional internal GPR communications obtained in discovery demonstrate that GPR personnel were aware that the revenue-fabrication allegations in Report 1 lacked adequate evidentiary support. Certain of these communications, which we intend to present at mediation and trial, reflect candid internal assessments by GPR analysts that the evidence for the fabricated-revenue theory was insufficient to support the categorical assertions made in the published report.
C. Significant Stock-Price Impact / Damages Evidence
The market impact of GPR's three reports was severe, immediate, and directly traceable to the dates of publication. The following stock-price data illustrates the magnitude of the harm:
With 73.8 million shares outstanding, the aggregate market-capitalization loss at the trough was $19.34 per share multiplied by 73.8 million shares, yielding an approximate aggregate market-cap decline of $1.427 billion. RGC's pre-publication market capitalization was approximately $6.8 billion; at the trough, market capitalization fell to approximately $4.95 billion — a decline of approximately $1.85 billion, or approximately 27.2%.
While RDGM has recovered a significant portion of its lost value in the months since the publications, the recovery has been incomplete. As of November 2024, RGC's market capitalization stands at approximately $6.1 billion — a shortfall of approximately $700 million from pre-publication levels. This persistent shortfall reflects continuing reputational damage to RGC and ongoing investor skepticism attributable to GPR's false reports, even after the regulatory exonerations and audit confirmations discussed above.
D. Dr. Vostrikova's Expert Report
Dr. Elena Vostrikova of Meridian Forensic Economics LLC, RGC's retained damages expert, prepared a comprehensive event-study analysis isolating the stock-price impact of GPR's three publications from contemporaneous market and sector-wide movements. Dr. Vostrikova's methodology is well-established in securities litigation and has been accepted by courts in numerous analogous cases. Her analysis controls for broad market fluctuations (using the S&P 500 as a market benchmark) and gaming-sector-specific movements (using a custom index of comparable publicly traded gaming companies) to isolate the "abnormal returns" attributable to GPR's publications.
Dr. Vostrikova's event-study-adjusted damages estimate is $327.6 million in shareholder value directly and demonstrably attributable to GPR's false statements. This figure represents the aggregate decline in RDGM's market capitalization that cannot be explained by broader market or sector trends and is therefore attributable to the information contained in GPR's reports.
In addition, Dr. Vostrikova analyzed GPR's short-sale profits. Based on GPR/GPCP's 680,000-share short position and trading data reflecting that the position was closed by mid-March 2024 at an estimated average price of approximately $72.80 per share, Dr. Vostrikova estimates that GPR and its affiliates realized profits of approximately $13.15 million from the short sale — calculated as ($92.14 − $72.80) × 680,000 shares. These profits represent the direct financial benefit that defendants derived from their publication of false statements about RGC.
Finally, RGC has incurred substantial out-of-pocket costs as a direct result of GPR's publications, totaling $4.627 million:
• Crisis communications and public relations (Crestline Equity Partners Group Inc.): $2.18 million. RGC was compelled to retain Ashgrove Equity Partners immediately following publication of Report 1 to manage investor and media communications, coordinate messaging with institutional shareholders, and mitigate the reputational fallout from the false allegations.
• Internal investigation and supplemental forensic audit (Pinnacle Audit & Advisory LLP): $1.46 million. RGC engaged Pinnacle to conduct a supplemental forensic audit specifically to address and rebut the revenue-fabrication allegations in Report 1. While the audit confirmed the accuracy of RGC's financial statements, it imposed significant costs that would not have been incurred but for GPR's false publications.
• Regulatory-response costs (Hargrove & Sato LLP, Nevada gaming counsel): $987,000. RGC retained Hargrove & Sato to coordinate its response to the Nevada Gaming Control Board's RNG audit and to the SEC's informal inquiry, both of which were triggered by GPR's reports.
These out-of-pocket costs are independently recoverable as special damages and provide an additional, concrete measure of the harm caused by GPR's publications.
E. Favorable Judicial Rulings
As discussed in Section II.B above, RGC has prevailed on both dispositive motions filed by defendants. The denial of the anti-SLAPP motion on June 7, 2024, and the denial of the motion for summary judgment on November 15, 2024, together reflect Judge Yamamoto's considered assessment that RGC has presented substantial evidence on all elements of its claims. While we recognize that these rulings are not predictive of trial outcomes — the burdens at summary judgment and trial are different — they are nonetheless powerful signals that the Court views RGC's evidence as credible and sufficient to warrant a jury's consideration. These rulings significantly strengthen our hand at the mediation table. Defendants and their counsel are undoubtedly aware that proceeding to trial without the benefit of any favorable dispositive ruling is a precarious position.
IV. Litigation Risks
While RGC's case is strong, intellectual honesty and prudent trial strategy require a candid assessment of the risks that remain. The following discussion is intended to inform the settlement-authority decision and to calibrate our expectations at mediation.
A. Actual-Malice Standard — Burden at Trial
As a publicly traded company, RGC bears the burden of proving actual malice by clear and convincing evidence — a standard that is higher than the preponderance-of-the-evidence standard applicable to most civil claims. While we believe the evidence of actual malice is substantial and compelling, as detailed in Section III.B, the clear-and-convincing standard is a meaningful hurdle at trial. Juries do not always draw the inferences that the evidence logically supports, and the clear-and-convincing instruction may lead some jurors to hesitate even in the face of strong evidence.
Defendants will argue vigorously at trial that GPR conducted legitimate short-seller research — a recognized and lawful activity in the securities markets — and that GPR had a good-faith basis for its allegations, even if those allegations ultimately proved to be incorrect. Defendants' narrative will be that GPR identified what it sincerely believed to be irregularities in RGC's financial reporting and gaming technology, published its findings in good faith, and disclosed its short position in accordance with industry norms. While we believe this narrative is contradicted by the evidence, we must acknowledge that some jurors may find it persuasive.
B. First Amendment / Public Interest Defense
Although the anti-SLAPP motion was denied, the First Amendment will remain a background theme throughout the trial. Defendants' counsel — the firm of Caldwell, Trask & Bidwell LLP, represented by lead attorneys Raymond Caldwell and Natalie Orenstein — will continue to invoke First Amendment protections and may attempt to frame the case as a David-versus-Goliath struggle between a major corporation and a scrappy independent research firm seeking to expose corporate wrongdoing. This narrative resonates with certain jurors, particularly in a cultural moment when there is broad public skepticism toward large corporations and sympathy for whistleblowers and market watchdogs.
Jury sympathy is inherently unpredictable. Some jurors may view short-seller research as serving a valuable public watchdog function, and they may be reluctant to impose liability for speech that, however flawed, was directed at a public company's financial practices. While the evidence of actual malice in this case goes well beyond mere inaccuracy — it demonstrates deliberate indifference to the truth motivated by financial self-interest — we cannot guarantee that every juror will appreciate this distinction.
C. Damages Causation Complexity
Damages will be a contested and complex issue at trial. Defendants will aggressively challenge Dr. Vostrikova's event-study methodology, arguing that her analysis fails to account for other market factors — including broader market volatility, sector-specific trends, and company-specific news unrelated to GPR's reports — that may have contributed to the decline in RDGM's stock price during the relevant period. While Dr. Vostrikova's methodology is rigorous and well-accepted, event-study analyses are inherently subject to dispute, and defendants' retained expert will likely present alternative analyses showing lower or even zero damages attributable to GPR's publications.
The gap between the event-study damages figure of $327.6 million and any likely monetary recovery at settlement (or even a reasonable verdict amount) creates a risk that the jury may be confused or overwhelmed by the magnitude of the numbers involved. Jurors who are not financially sophisticated may struggle to reconcile a $327.6 million damages estimate with the practical realities of the case, and they may anchor on a number that is significantly lower than what the evidence supports — or, conversely, they may be so struck by the magnitude of the market-cap loss that they return a verdict that defendants cannot pay, leading to protracted collection litigation.
D. Trial Duration and Cost
Based on our current trial preparation assessment, we estimate that the trial will require three to four weeks of courtroom time, given the number of witnesses, the volume of documentary evidence, and the complexity of the expert testimony on damages causation. A trial of this length will impose significant additional costs on RGC. We estimate that RGC's additional pre-trial preparation and trial costs — including attorneys' fees, expert fees, trial-support vendor costs, and related expenses — will be in the range of $2 million to $3 million.
Beyond the direct financial costs, a multi-week trial will impose a substantial burden on RGC's management team. CEO Marcus J. Calloway and CFO Priya Ramaswaran will both be required to testify at trial and will likely be needed for extended trial preparation sessions, witness preparation, and potential availability for consultation during trial. The distraction to senior management during a trial of this duration is a real cost that should be weighed in the settlement calculus, particularly given RGC's ongoing business operations, pending strategic initiatives, and regulatory responsibilities.
E. Collection Risk
Even in the event of a favorable trial verdict, collection of a large judgment from the defendants presents meaningful challenges. As discussed in detail in Section V below, GPR's liquid assets are estimated at approximately $22 million, and GPCP's assets — while significantly larger at approximately $185 million in AUM — are fund assets held for investors and would be difficult to reach without complex and uncertain piercing-the-veil litigation. Fenchurch's personal assets are unknown, though likely substantial.
Insurance proceeds under the Ironclad Surety & Insurance Co. policy are the most reliable source of recovery, but policy limits may constrain the total available amount. Beyond insurance, direct recovery from the defendants' assets would require execution proceedings and potentially protracted post-judgment litigation.
Appeal risk is also substantial. Defendants would almost certainly appeal any significant verdict, potentially invoking First Amendment grounds, challenges to the actual-malice finding, and arguments regarding the sufficiency of the damages evidence. An appeal could delay RGC's recovery by two to three years and would impose additional legal costs. While we believe that any verdict in RGC's favor would withstand appellate scrutiny, the delay and uncertainty of an appeal are real risks that favor settlement.
V. Defendants' Financial Capacity and Insurance Coverage
A realistic assessment of defendants' ability to fund a settlement is essential to calibrating our settlement demands. This section addresses each defendant's financial capacity, the available insurance coverage, and the practical implications for collectability.
A. Grizzly Peak Research LLC
GPR is a Delaware limited liability company that operates primarily as a research and publishing entity. Based on our review of financial information produced in discovery and publicly available data, we estimate that GPR has approximately $22 million in cash and receivables as of year-end 2024. GPR's assets are predominantly liquid — cash and short-term receivables — with limited hard assets such as real property or equipment. GPR generates revenue through a combination of subscription fees for its research reports and, critically, trading profits realized through GPCP's investment activities. GPR's modest asset base relative to the damages at issue underscores the importance of insurance coverage as the primary source of settlement funding.
B. Grizzly Peak Capital Partners LP
GPCP is an affiliated hedge fund with estimated assets under management of approximately $185 million. GPCP is structured as a Delaware limited partnership. Its general partner is Grizzly Peak Capital GP LLC, whose sole managing member is Tobias Fenchurch. GPCP is the entity through which the 680,000-share short position in RDGM was maintained and through which the estimated $13.15 million in short-sale profits were realized.
While GPCP's AUM is substantial, the fund's assets are held for the benefit of its investors (limited partners), and they are not freely available to satisfy GPR's or Fenchurch's litigation liabilities. Reaching GPCP's fund assets would require piercing the corporate veil or establishing that GPCP is the alter ego of GPR or Fenchurch — legal theories that are complex, fact-intensive, and uncertain in outcome under Delaware law. We do not view GPCP's fund assets as a reliable source of settlement funding, although the existence of a $185 million fund associated with the defendants does create leverage insofar as defendants may wish to avoid the reputational harm and investor disruption that would accompany a large public judgment or aggressive post-judgment collection efforts.
C. Tobias Fenchurch (Individual Defendant)
Fenchurch's personal assets are not fully known to us, as individual financial discovery in this case has been limited. However, as the founder and sole managing member of a fund with approximately $185 million in AUM, Fenchurch is almost certainly a high-net-worth individual. His personal liability exposure in this case — which includes potential joint and several liability on all four causes of action — may serve as a powerful individual motivator to settle. The prospect of a personal judgment, with all of its attendant consequences for his reputation, creditworthiness, and ability to operate in the financial services industry, gives Fenchurch a personal stake in reaching a resolution at mediation.
D. Ironclad Surety & Insurance Co. — D&O / Media-Liability Coverage
GPR maintains directors and officers liability and media-liability coverage under a policy issued by Ironclad Surety & Insurance Co. The relevant policy is Policy No. ML-2023-07714, which is a claims-made policy. Ironclad has acknowledged coverage for this matter and is expected to contribute to settlement funding. The assigned claims adjuster is Daniel Royce of Ironclad Surety & Insurance Co., located at 200 Park Avenue South, 14th Floor, New York, New York 10003.
Based on our review of the available policy documents, we believe that Policy No. ML-2023-07714 provides meaningful coverage that could fund the majority of a settlement within our recommended range. The precise policy limits and remaining coverage capacity are not fully known to us at this time and should be explored during the mediation process. It is common in mediations of this nature for the mediator, acting as an intermediary, to facilitate discussions regarding available insurance capacity, and we expect Judge Matsuda to play that role here.
Ironclad's participation is critical to a successful resolution. Without insurance funding, GPR's direct payment capacity is limited to its approximately $22 million in liquid assets, and any settlement in excess of that amount would require contributions from GPCP and/or Fenchurch personally — contributions that are less certain and less easily compelled. Our mediation strategy is accordingly designed to ensure that Ironclad is actively engaged in the settlement discussions from the outset.
E. Practical Collectability Assessment
Taking all of the foregoing into account, a realistic assessment of collectability favors a settlement in the $12 million to $18 million range rather than pursuing a larger judgment that may prove difficult to collect and that would be subject to extended appellate litigation. Insurance proceeds represent the most reliable and readily available source of funds. Direct contributions from GPR and GPCP are secondary but potentially achievable, particularly if Fenchurch is personally motivated to resolve the matter. A settlement within our recommended range is achievable given the available funding sources and would provide RGC with a certain, near-term recovery — in contrast to the uncertain, delayed, and potentially uncollectible prospect of a post-trial judgment.
VI. Recommended Settlement Range and Terms
Based on our analysis of the strengths and risks of the case, the damages framework, and the defendants' financial capacity, we recommend that RGC pursue the following settlement terms at the mediation.
A. Monetary Component: $12–18 Million
We recommend a monetary settlement in the range of $12 million to $18 million, structured as follows:
Floor — $12 Million. The minimum acceptable monetary settlement is $12 million. This figure represents approximately the amount of GPR's estimated short-sale profits ($13.15 million) and constitutes meaningful accountability for defendants' misconduct. A settlement below $12 million would be viewed — both internally and by the market — as an inadequate recovery given the magnitude of the damages inflicted on RGC and its shareholders. At this level, defendants would be disgorging essentially all of their ill-gotten gains, which sends an appropriate deterrent message. If defendants are unwilling to agree to a monetary component of at least $12 million, together with the non-monetary terms described below, we recommend proceeding to trial.
Target — $14–16 Million. Our target range is $14 million to $16 million. This range is achievable given the expected insurance capacity under the Ironclad policy and GPR's available assets. A settlement in this range would represent a significant recovery relative to RGC's out-of-pocket costs of $4.627 million (a multiple of approximately 3x to 3.5x) and would exceed GPR's estimated short-sale profits. This range also reflects a meaningful, though appropriately discounted, fraction of the event-study damages of $327.6 million, taking into account litigation risk, trial uncertainty, and collectability constraints.
Ceiling / Opening Demand — $18 Million. Our opening demand at mediation will be $18 million. This figure is ambitious but defensible. It is anchored by the $327.6 million in event-study damages, the $1.427 billion in aggregate market-cap losses at the trough, and the strength of the actual-malice evidence. An opening demand of $18 million signals seriousness and provides room for negotiation while remaining within a range that defendants and their insurer can be expected to take seriously.
Expected Allocation of Payment. We expect that the majority of any monetary settlement payment would be funded by Ironclad under Policy No. ML-2023-07714, with the remainder contributed directly by GPR and GPCP, jointly. We will work with Judge Matsuda to ensure that Ironclad's representative or counsel is available and empowered to participate in real-time discussions regarding insurance contributions during the mediation.
B. Corrective Statements (Non-Monetary — Critical)
We regard corrective statements as a condition of settlement — not a negotiable add-on. The corrective statements are of paramount importance to RGC's reputation, investor confidence, and long-term market valuation. The false allegations published by GPR continue to circulate online and are referenced in investor forums, media articles, and analyst reports. Without a formal, authoritative correction published by GPR itself, the damage to RGC's reputation will persist indefinitely.
Full Corrective Publication. We will require that GPR post a corrective statement on grizzlypeakresearch.com of not fewer than 1,500 words, specifically acknowledging material inaccuracies in all three reports. The corrective statement must include, at a minimum, the following specific acknowledgments:
(i) That the revenue-fabrication allegation in Report 1 ("House of Cards") was unfounded and that RGC's FY 2023 financial statements, as audited by Pinnacle Audit & Advisory LLP, are accurate;
(ii) That the RNG-manipulation allegation in Report 2 ("Rigged Reels") was disproven by the Nevada Gaming Control Board's independent audit, which cleared RGC's systems; and
(iii) That the related-party allegation in Report 3 ("Double Down on Fraud") was based on incomplete information and was misleading, and that the SEC's inquiry into the matter was closed without action.
The corrective publication must remain posted on grizzlypeakresearch.com for a minimum of 24 months from the date of posting, and it must be accessible from the homepage of the website with reasonable prominence.
Social Media Corrective. In addition to the full corrective publication, we will require that GPR post a corrective statement on the @GrizzlyPeakRes social media account of not fewer than 280 characters, linking to the full Corrective Publication on grizzlypeakresearch.com. Given that GPR's social media account had approximately 142,000 followers at the time the original reports were published and disseminated, the social media corrective is essential to reaching the audience that saw and was influenced by the original false reports.
Mutual Approval of Language. The exact text of both corrective statements will be subject to mutual approval by the parties, with RGC retaining meaningful input over the language, tone, and substantive content. We will resist any attempt by defendants to water down the corrective statements to the point of meaninglessness, and we will insist on language that unambiguously acknowledges the falsity of the core allegations.
Coordination with Crestline Equity Partners Group. We recommend coordinating the timing of the corrective statements' publication with Crestline Equity Partners Group Inc. (contact: Simone Arecchi) to maximize the positive market impact. Ideally, the publication of the corrective statements would be paired with a Company-issued press release or investor communication highlighting the resolution and the corrective acknowledgments.
C. Permanent Injunction
We will seek permanent injunctive relief as a component of the settlement, to be entered by stipulation and court order, thereby giving the injunction the force of a court decree enforceable through contempt proceedings. The injunction should include the following components:
Republication Injunction. Defendants shall be permanently enjoined from republishing, redistributing, or otherwise disseminating the three reports identified above, or any substantially similar statements concerning RGC, its financial reporting, its gaming technology, or the personal or business dealings of its officers and directors. This provision is essential to prevent GPR from recycling its false allegations in future publications, whether under GPR's own name or through third-party channels.
Securities Trading Bar. Defendants — including GPR, GPCP, Fenchurch, and their respective affiliates, agents, and persons acting in concert with them — shall be permanently enjoined from trading in RDGM securities (including common stock, options, derivatives, and any other financial instruments whose value is derived from or related to the price of RDGM shares) for a period of five (5) years from the effective date of the settlement. This provision is critical. It eliminates the profit motive that drove GPR's original misconduct and sends a strong deterrent signal to other short-seller research firms that may contemplate similar schemes targeting RGC or other publicly traded companies. We note that the trading bar does not prevent GPR or its affiliates from conducting research on or publishing reports about other companies; it is narrowly tailored to address the specific harm at issue in this litigation.
Enforcement Mechanism. The injunction shall be entered by the Court as a stipulated order pursuant to the parties' settlement agreement, giving it the force of a court decree. Any violation of the injunction would be enforceable through contempt proceedings, providing a swift and effective enforcement mechanism.
D. Additional Non-Monetary Terms
In addition to the corrective statements and injunctive relief described above, we recommend that the settlement agreement include the following terms:
Mutual Releases. Broad mutual releases of all claims, demands, causes of action, and liabilities of any nature whatsoever, whether known or unknown, that arise from or relate to the publications at issue or the litigation, with appropriate carve-outs for the parties' obligations under the Settlement Agreement itself and any related stipulated court orders. The releases should include a waiver of California Civil Code § 1542, which provides that a general release does not extend to claims that the releasing party does not know or suspect to exist at the time of executing the release.
Non-Disparagement. A mutual non-disparagement clause with a term of three (3) years from the effective date of the settlement. Each party and its respective officers, directors, employees, and agents shall agree not to make any public or private statements that are disparaging, critical, or otherwise detrimental to the reputation or business interests of the other party. This provision protects both sides and provides a structured framework for moving forward after the resolution of the dispute.
Confidentiality. The monetary amount of the settlement shall be confidential and shall not be disclosed by either party except as required by law, regulation, or court order, or to the parties' respective professional advisors, auditors, and insurers. Critically, however, the existence of the settlement and the corrective statements themselves shall not be subject to confidentiality restrictions. The entire purpose of the corrective statements is public disclosure, and any confidentiality provision that impeded their dissemination would defeat a core objective of the settlement.
Dismissal. The parties shall file a stipulated request for dismissal of the entire action with prejudice. The Court shall retain jurisdiction under California Code of Civil Procedure § 664.6 to enforce the terms of the settlement agreement. Retention of jurisdiction under Section 664.6 provides a streamlined enforcement mechanism in the event of any future dispute regarding compliance with the settlement terms.
Attorneys' Fees. Each party shall bear its own attorneys' fees and costs. This is the standard approach in settlements of this nature and avoids the additional complexity and delay that fee-shifting negotiations would entail.
VII. Mediation Logistics and Tactical Approach
A. Mediator Profile
The mediation will be conducted by the Honorable Gerald K. Matsuda (Ret.), who has an extensive background in complex commercial litigation and a well-established reputation as a skilled and effective mediator. Judge Matsuda served on the Los Angeles Superior Court bench for over twenty years before retiring to private mediation practice, and he has successfully mediated numerous high-stakes business disputes involving claims of similar magnitude and complexity. His style is generally described as facilitative but willing to be evaluative when necessary — meaning he will push both sides to confront the weaknesses in their positions and will not hesitate to share his own views on the merits when doing so may help break an impasse. We believe Judge Matsuda is well-suited to this dispute and that his experience and credibility will be assets in the mediation process.
The mediation is scheduled for two full days: December 3, 2024 (Day 1) and December 4, 2024 (Day 2), at the Westside Mediation Center, 11601 Wilshire Boulevard, Suite 1200, Los Angeles, California 90025. We should plan for the possibility that the mediation may require the full two days, with substantive negotiations likely extending into the evening hours on one or both days.
A separate confidential mediation brief will be prepared and submitted to Judge Matsuda by November 27, 2024. The mediation brief will provide Judge Matsuda with an overview of the case, RGC's view of the strengths and weaknesses of both sides' positions, and RGC's settlement objectives. The brief will be marked confidential and will not be shared with opposing counsel.
B. RGC's Mediation Team
We recommend the following mediation team composition for RGC:
• Francesca Morano (lead counsel, Calderwood & Harkness LLP) — will serve as lead spokesperson in joint sessions and caucus sessions with the mediator.
• Carlos Espinoza (supporting counsel, Calderwood & Harkness LLP) — will assist with factual presentation, document references, and real-time legal analysis.
• Derek Olafson (General Counsel, Redstone Gaming Corp.) — will participate as the client representative with settlement authority and will be available for direct communication with the mediator and, if appropriate, with opposing principals.
• Marcus J. Calloway (CEO, Redstone Gaming Corp.) — if available and appropriate. We recommend that Mr. Calloway be present at least for a portion of Day 1 to participate in the opening session. His presence serves two strategic purposes: it signals to defendants and to Judge Matsuda that RGC takes this matter with the utmost seriousness, and it provides an opportunity for Mr. Calloway to speak directly to the personal and corporate harm caused by GPR's false publications. Direct executive-to-principal communication can sometimes break through negotiation dynamics in ways that attorney-to-attorney exchanges cannot. If Mr. Calloway's schedule does not permit full-day attendance, we recommend that he attend the morning session on Day 1 and be available by telephone for the remainder of the mediation.
C. Opening Presentation Strategy
Our opening presentation at mediation will be structured to make maximum impact in a limited time. We anticipate that Judge Matsuda will allow each side approximately 30 to 45 minutes for an opening statement in joint session. We recommend the following structure:
Lead with the Regulatory Exonerations. We will open by presenting the three independent regulatory and audit outcomes that have refuted GPR's core allegations: the Nevada Gaming Control Board's RNG audit, the SEC's closure of its inquiry without action, and Pinnacle's supplemental forensic audit. These outcomes are powerful, authoritative, and easy to understand. They establish the falsity of GPR's publications quickly and succinctly, and they shift the burden onto defendants to explain why their reports should be credited over the findings of the NGCB, the SEC, and RGC's independent auditors.
Present the Stock-Price Impact. We will display a stock-price chart showing the three successive declines in RDGM shares coinciding precisely with the publication dates of each of the three reports. Visual evidence of this kind is immediately compelling and effectively communicates the causal link between GPR's publications and the harm to RGC. The chart will include annotations showing the date and title of each report alongside the corresponding stock-price decline.
Highlight the Actual-Malice Evidence. We will present the key evidence of actual malice in narrative form: Fenchurch's admission that he instructed publication of Report 3 before verification was complete; Lin's acknowledged failure to contact the Nevada Gaming Control Board; Lin's internal Meridian Solutions messages expressing doubts about the related-party allegations; and the 680,000-share short position, which gave GPR a $62.66 million financial incentive to publish false statements. This evidence will be presented as a narrative of deliberate misconduct driven by financial self-interest.
Quantify Damages — Anchor High. We will present Dr. Vostrikova's event-study damages figure of $327.6 million to establish the full magnitude of the harm and to anchor the negotiation at the highest defensible level. We will then pivot to a discussion of the practical settlement range, emphasizing that RGC is willing to resolve the matter for a fraction of its provable damages in recognition of the practical realities of collection, but that any settlement must be meaningful and must include the non-monetary terms described below.
Emphasize Non-Monetary Terms as Essential. We will make clear from the outset that corrective statements, the republication injunction, and the trading bar are essential components of any settlement — not optional extras or negotiable add-ons. By framing these terms as non-negotiable early in the process, we set expectations and avoid a dynamic in which defendants treat non-monetary terms as concessions to be traded for reductions in the monetary component.
D. Concession Strategy
We recommend the following concession strategy for the monetary component of the settlement:
Opening Demand: $18 million, plus full non-monetary terms (corrective statements, republication injunction, 5-year trading bar, non-disparagement, confidentiality of settlement amount).
First Concession: Move to $16 million, maintaining all non-monetary terms unchanged. This concession signals willingness to negotiate while maintaining a position well within our target range.
Second Concession (if needed): Move to the $14 million range, continuing to hold firm on the specifics of the corrective statements and the scope of the injunctive relief. At this level, we should seek to extract a reciprocal concession from defendants on one of the non-monetary terms — for example, acceptance of the 1,500-word minimum for the corrective publication or agreement to the 5-year trading bar.
Absolute Floor: $12 million, plus corrective statements and injunctive relief. Below this threshold, we recommend that RGC decline to settle and proceed to trial. A settlement below $12 million would not represent adequate accountability for GPR's misconduct, would not adequately compensate RGC for its out-of-pocket costs (which alone total $4.627 million), and would send the wrong signal to the market and to other potential short-seller antagonists.
On the non-monetary terms, we should recognize that these terms are often harder for defendants to resist than additional monetary payments, particularly when the corrective statements and injunction can be framed as a natural and appropriate resolution that brings closure to the dispute. We should lean into the non-monetary terms as the primary focus of our demands, knowing that they provide enormous strategic value to RGC — including reputational rehabilitation, investor-confidence restoration, and deterrence of future misconduct.
E. Anticipated Defense Positions
Based on our knowledge of defendants' counsel — the firm of Caldwell, Trask & Bidwell LLP ("CTB"), represented by lead attorneys Raymond Caldwell and Natalie Orenstein — and on the positions defendants have taken throughout this litigation, we anticipate the following arguments at mediation:
Protected Opinion / First Amendment. CTB will argue that GPR's reports constitute protected opinion on matters of public interest and that the First Amendment shields GPR from liability for expressing its views about a publicly traded company's financial practices. We should be prepared to respond by distinguishing between opinion (which is protected) and assertions of fact presented as conclusions of investigation (which are not), and by emphasizing that the specific factual assertions in GPR's reports — e.g., that RGC fabricated $410 million in revenue, that RGC manipulated its RNG software — are verifiable assertions of fact that have been proven false.
Speculative Damages. CTB will argue that RGC's damages are speculative and that the stock-price decline was caused by market factors unrelated to GPR's publications. We should be prepared to present Dr. Vostrikova's event-study methodology and to explain, in accessible terms, how the analysis isolates the impact of GPR's publications from broader market movements.
Limited Assets / Unrealistic Demands. CTB may argue that GPR's limited asset base makes any large monetary recovery unrealistic, and that RGC's demands should be calibrated to what GPR can actually pay. We should acknowledge this argument but redirect the discussion to the insurance coverage available under the Ironclad policy, which we believe can fund the majority of a settlement within our recommended range.
Resistance to Corrective Statements. CTB may resist corrective statements on the ground that they are overly burdensome, constitute compelled speech, or go beyond what is customary in litigation settlements. We should argue that corrective statements are a natural and appropriate remedy for the proven falsity of GPR's publications, that they serve the legitimate purpose of correcting the public record, and that they are a standard feature of settlements involving defamatory publications. We should also note that the corrective statements are narrowly tailored to acknowledge specific inaccuracies identified through regulatory proceedings and forensic audits — not to compel GPR to express any particular viewpoint.
Resistance to Trading Bar. CTB may argue that a five-year trading bar is excessive, punitive, and unrelated to the merits of the dispute. We should frame the trading bar as a necessary prophylactic measure designed to prevent recurrence of the very conduct that gave rise to this litigation — namely, the publication of false reports about RGC while maintaining a short position designed to profit from the resulting stock-price decline. We should note that the trading bar is narrowly limited to RDGM securities and does not pre