SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
REDSTONE GAMING CORP., a Nevada corporation,
Plaintiff,
v.
GRIZZLY PEAK RESEARCH LLC, a Delaware limited liability company; GRIZZLY PEAK CAPITAL PARTNERS LP, a Delaware limited partnership; and TOBIAS FENCHURCH, an individual,
Defendants.
Case No. 24STCV-01892
Assigned for All Purposes to: Hon. Patricia Yamamoto, Dept. 14
FIRST AMENDED COMPLAINT FOR:
(1) Trade Libel (Cal. Civ. Code § 46(3)); (2) Intentional Interference with Prospective Economic Advantage; (3) Unfair Business Practices (Cal. Bus. & Prof. Code § 17200); and (4) Negligent Misrepresentation
DEMAND FOR JURY TRIAL
Filed: March 18, 2024
Plaintiff Redstone Gaming Corp. ("RGC," "Redstone," or "Plaintiff"), by and through its attorneys of record, Calderwood & Harkness LLP, hereby files this First Amended Complaint against Defendants Grizzly Peak Research LLC ("GPR"), Grizzly Peak Capital Partners LP ("GPCP"), and Tobias Fenchurch ("Fenchurch") (collectively, "Defendants"), and alleges as follows:
I. INTRODUCTION
1. This First Amended Complaint arises from a coordinated scheme by Defendants Grizzly Peak Research LLC, Grizzly Peak Capital Partners LP, and Tobias Fenchurch to publish knowingly false and defamatory reports about Plaintiff Redstone Gaming Corp. for the purpose of profiting from short sales of Plaintiff's publicly traded securities. Defendants' scheme was calculated, deliberate, and undertaken with full knowledge that their accusations were baseless or, at a minimum, with reckless disregard for the truth of the matters they published to the investing public.
2. Between February 7 and February 21, 2024, Defendants published three fabricated "research" reports accusing Plaintiff of financial fraud, regulatory manipulation, and undisclosed related-party transactions. Each of these accusations was baseless. Each has since been affirmatively disproven by independent third-party investigations, including a supplemental forensic audit by Plaintiff's independent auditor, Pinnacle Audit & Advisory LLP; an independent random-number-generator ("RNG") audit by the Nevada Gaming Control Board; and an informal inquiry by the United States Securities and Exchange Commission ("SEC") that was opened and subsequently closed with no enforcement action.
3. These false publications caused Plaintiff's Nasdaq-listed common stock (ticker: RDGM) to plummet from $92.14 per share to $72.80 per share over the span of just fourteen days — a decline of approximately 21.0% — destroying approximately $1.427 billion in shareholder value at the trough. As of January 2025, Plaintiff's stock price has only partially recovered, and Plaintiff's market capitalization remains approximately $700 million below its pre-publication level.
4. Defendants profited handsomely from this destruction. Defendant GPCP, the affiliated hedge fund controlled by Defendant Fenchurch, reaped estimated short-sale profits of approximately $13.15 million on a short position of approximately 680,000 shares of RDGM stock that had been established prior to the first publication. The timing and magnitude of that short position — coordinated with the sequential release of three inflammatory reports over a two-week period — conclusively demonstrate that Defendants' publications were not the product of legitimate financial research or journalism but were, instead, the instruments of a deliberate "short and distort" scheme.
5. Plaintiff originally filed its Complaint in this action on February 28, 2024, naming only Grizzly Peak Research LLC as a defendant and asserting three causes of action for trade libel, intentional interference with prospective economic advantage, and unfair business practices. Through discovery and independent investigation, Plaintiff has since confirmed that Defendant GPCP was the entity that maintained and traded the short position in RDGM stock and that Defendant Fenchurch personally directed, oversaw, approved, and authorized the publication of all three defamatory reports and coordinated the timing of those publications with GPCP's trading activity. Plaintiff now adds GPCP and Fenchurch as defendants and asserts a fourth cause of action for negligent misrepresentation.
II. PARTIES
A. Plaintiff Redstone Gaming Corp.
6. Plaintiff Redstone Gaming Corp. ("RGC" or "Plaintiff") is a corporation organized and existing under the laws of the State of Nevada, with its principal executive offices located at 8800 Crimson Ridge Parkway, Suite 1200, Las Vegas, Nevada 89113. RGC's registered agent in Nevada is National Statutory Agents, Inc., 701 S. Carson Street, Suite 200, Carson City, Nevada 89701. RGC's Employer Identification Number ("EIN") is 88-0412793.
7. RGC's common stock is publicly traded on the Nasdaq Stock Market under the ticker symbol "RDGM." As of February 6, 2024 — the last trading day before the publication of the first defamatory report — RGC had approximately 73.8 million shares of common stock outstanding, and its shares traded at a closing price of $92.14 per share, giving it a market capitalization of approximately $6.8 billion.
8. RGC owns and operates eleven casino-resort properties across the states of Nevada, New Jersey, and Mississippi. In addition to its brick-and-mortar gaming operations, RGC licenses proprietary electronic gaming platforms to third-party casino operators. RGC also operates an iGaming division known as "Redstone Digital," which offers online gaming platforms to consumers in jurisdictions where online gaming is legal, and a media-entertainment production arm known as "Crimson Studios," which produces live entertainment events, branded media content, and experiential programming for RGC's properties and for distribution to third parties.
9. RGC's senior management team includes Marcus J. Calloway, Chief Executive Officer; Priya Ramaswaran, Chief Financial Officer; Derek Olafson, General Counsel and Executive Vice President, Legal Affairs; and Janelle Hu, Vice President, Investor Relations. Each of these individuals has been employed by RGC for a minimum of four years and has extensive experience in the gaming and hospitality industries.
10. For the fiscal year ended December 31, 2023 ("FY 2023"), RGC reported consolidated revenue of $3.42 billion, earnings before interest, taxes, depreciation, and amortization ("EBITDA") of $812 million (representing an EBITDA margin of approximately 23.7%), and net income of $394 million. These results were audited by RGC's independent auditor, Pinnacle Audit & Advisory LLP ("Pinnacle"), engagement partner Walter Ng, CPA, with offices at 400 South 4th Street, Suite 600, Las Vegas, Nevada 89101. Pinnacle issued unqualified ("clean") audit opinions on RGC's consolidated financial statements for FY 2021, FY 2022, and FY 2023. At no time has Pinnacle issued a qualified opinion, a disclaimer of opinion, or an adverse opinion on RGC's financial statements.
11. RGC's gaming operations are regulated by, among others, the Nevada Gaming Control Board, the New Jersey Division of Gaming Enforcement, and the Mississippi Gaming Commission. RGC has maintained all required licenses and approvals to conduct gaming operations in each jurisdiction in which it operates. RGC has never been cited for material regulatory violations by any gaming regulatory authority.
B. Defendant Grizzly Peak Research LLC
12. Defendant Grizzly Peak Research LLC ("GPR") is a limited liability company organized and existing under the laws of the State of Delaware, with its principal office located at 44 Maiden Lane, 7th Floor, San Francisco, California 94108. GPR's registered agent in Delaware is Pacific Corporate Services LLC, 1209 Orange Street, Wilmington, Delaware 19801. GPR's EIN is 85-3291064.
13. GPR publishes purported "short-seller research" reports on publicly traded companies. GPR distributes its reports through its subscription website, grizzlypeakresearch.com, and through its social media account on the X platform (formerly Fenmore Solutions), under the handle @GrizzlyPeakRes. At the time of the publications at issue in this action, the @GrizzlyPeakRes account had approximately 142,000 followers. GPR's reports are also widely disseminated through financial news aggregators, investment blogs, and electronic trading platforms.
14. GPR's Managing Member is Defendant Tobias Fenchurch. GPR's Senior Analyst and co-author of the three defamatory reports at issue in this action is Ava Lin. Upon information and belief, GPR employs approximately eight to twelve additional staff members, including junior analysts and marketing personnel.
15. Upon information and belief, as of year-end 2024, GPR had approximately $22 million in cash and receivables. GPR derives revenue from subscription fees for its reports, from speaking and media engagements, and, upon information and belief, from the profits generated by the coordinated short-selling activity of its affiliated hedge fund, GPCP.
C. Defendant Grizzly Peak Capital Partners LP
16. Defendant Grizzly Peak Capital Partners LP ("GPCP") is a limited partnership organized and existing under the laws of the State of Delaware. GPCP is named as a defendant in this First Amended Complaint for the first time. GPCP's principal office is located at 44 Maiden Lane, 7th Floor, San Francisco, California 94108 — the same address as GPR. GPCP's EIN is 85-3291078.
17. GPCP's general partner is Grizzly Peak Capital GP LLC ("GP LLC"), a Delaware limited liability company whose sole managing member is Defendant Tobias Fenchurch. Fenchurch thus exercises ultimate decision-making authority over GPCP's investment activities, trading strategies, and portfolio positions.
18. GPCP is an affiliated hedge fund that, upon information and belief, maintained estimated assets under management of approximately $185 million at the time of the publications at issue. GPCP maintained and traded the short position in RDGM stock that is at the center of this action.
19. Prior to the publication of the first defamatory report on February 7, 2024, GPCP held a short position of approximately 680,000 shares of RDGM stock, representing a notional value of approximately $62.66 million at the pre-publication closing price of $92.14 per share. Upon information and belief, GPCP closed its short position by mid-March 2024, purchasing shares at an estimated average price of $72.80 per share, thereby realizing estimated gross profits of approximately $13.15 million, calculated as follows: ($92.14 − $72.80) × 680,000 shares ≈ $13,151,200.
20. GPCP's short position, its timing relative to the publications, and its coordinated unwinding in the period immediately following the publications demonstrate that GPCP was an integral component of Defendants' short-and-distort scheme.
D. Defendant Tobias Fenchurch
21. Defendant Tobias "Toby" Fenchurch ("Fenchurch") is an individual who is and at all relevant times was a resident of San Francisco, California. Fenchurch is named as a defendant in this First Amended Complaint for the first time. Fenchurch is sued in his individual capacity based on his direct personal participation in the tortious conduct alleged herein.
22. Fenchurch is the Managing Member of GPR and the sole managing member of GP LLC, which is in turn the sole general partner of GPCP. Fenchurch thus controls both the research and publication arm (GPR) and the trading and investment arm (GPCP) of the enterprise through which Defendants conducted the scheme alleged in this Complaint.
23. Fenchurch personally directed, oversaw, approved, and authorized the publication of all three defamatory reports at issue in this action. Fenchurch personally reviewed and approved drafts of each report before publication. Fenchurch personally instructed GPR's Senior Analyst, Ava Lin, to publish the third report before completing verification of the underlying factual allegations. Fenchurch personally maintained and directed the trading of the short position in RDGM securities through GPCP, including the timing and sizing of the short-position establishment and the subsequent covering of that position.
24. By reason of his personal direction of, participation in, and control over the tortious conduct alleged herein, Fenchurch is jointly and severally liable for the damages caused by Defendants' scheme.
III. JURISDICTION AND VENUE
25. This Court has jurisdiction over this action pursuant to California Code of Civil Procedure sections 410.10 and 410.50. The amount in controversy exceeds the jurisdictional minimum of this Court.
26. This Court has personal jurisdiction over Defendant GPR because GPR maintains its principal office in San Francisco, California, and conducts substantial and continuous business activities within the State of California. GPR also purposefully directed its tortious publications at California residents, including RGC's investors and the investing public, through internet platforms accessible throughout California.
27. This Court has personal jurisdiction over Defendant GPCP because GPCP maintains its principal office in San Francisco, California, at the same location as GPR; because GPCP traded securities of a publicly traded company whose investors include numerous California residents; and because GPCP's trading activities were coordinated with GPR's publication activities directed at California.
28. This Court has personal jurisdiction over Defendant Fenchurch because Fenchurch is a resident of San Francisco, California; because Fenchurch personally directed, oversaw, and authorized the tortious publications at issue from California; and because Fenchurch personally directed the trading of the short position from California.
29. Venue is proper in Los Angeles County pursuant to California Code of Civil Procedure sections 395 and 395.5 because a substantial portion of the events and omissions giving rise to this action occurred in Los Angeles County, including injury to Plaintiff's business relationships with institutional investors, securities analysts, and investment advisors located in Los Angeles County. Upon information and belief, a material number of RDGM shareholders, including institutional shareholders, are located in Los Angeles County, and RGC regularly conducts investor-relations activities, analyst meetings, and corporate presentations in Los Angeles County. Moreover, the defamatory publications were disseminated over the internet and were accessed and read by members of the investing public in Los Angeles County.
IV. FACTUAL ALLEGATIONS
A. Background on Redstone Gaming Corp.
30. RGC is one of the leading gaming and entertainment companies in the United States. RGC owns and operates eleven casino-resort properties across three states: seven properties in Nevada, including three located on or near the Las Vegas Strip; two properties in New Jersey, including one in Atlantic City; and two properties in Mississippi, located in the Gulf Coast and River Region gaming markets. These properties collectively comprise over 10,000 hotel rooms, more than 25,000 gaming positions (including slot machines and table games), over 500,000 square feet of convention and meeting space, and numerous restaurants, entertainment venues, and retail outlets.
31. In addition to its brick-and-mortar gaming and hospitality operations, RGC operates two significant business divisions. The first, Redstone Digital, is RGC's iGaming division, which offers proprietary online gaming platforms — including online slots, table games, sports betting, and poker — to consumers in jurisdictions where online gaming has been legalized. Redstone Digital has experienced rapid growth since its launch in 2020 and generated approximately $380 million in revenue in FY 2023. The second, Crimson Studios, is RGC's media-entertainment production arm, which produces live entertainment programming, branded content, and experiential events for both RGC's owned properties and third-party venues. Crimson Studios generated approximately $145 million in revenue in FY 2023.
32. RGC's common stock is listed and traded on the Nasdaq Stock Market under the ticker symbol "RDGM." As of February 6, 2024, the last trading day before the publication of the first defamatory report, RGC had approximately 73.8 million shares of common stock outstanding. The closing price of RDGM on that date was $92.14 per share, giving RGC a market capitalization of approximately $6.8 billion.
33. For FY 2023, RGC reported consolidated revenue of $3.42 billion, EBITDA of $812 million (representing an EBITDA margin of approximately 23.7%), and net income of $394 million. These results reflected strong performance across all of RGC's operating segments. RGC's FY 2023 financial statements were audited by Pinnacle Audit & Advisory LLP, engagement partner Walter Ng, CPA, with offices at 400 South 4th Street, Suite 600, Las Vegas, Nevada 89101. Pinnacle issued an unqualified ("clean") audit opinion on RGC's FY 2023 consolidated financial statements on February 2, 2024 — five days before the publication of GPR's first defamatory report. Pinnacle likewise issued unqualified audit opinions on RGC's consolidated financial statements for FY 2021 and FY 2022.
34. RGC's gaming operations are subject to extensive regulation by state gaming authorities, including the Nevada Gaming Control Board ("NGCB"), the New Jersey Division of Gaming Enforcement, and the Mississippi Gaming Commission. RGC is required to maintain gaming licenses in each jurisdiction in which it operates, and its operations, financial condition, and key personnel are subject to ongoing regulatory scrutiny. RGC has maintained all required licenses and approvals at all relevant times and has never been cited for material regulatory violations by any gaming authority.
B. Defendants' Short-Selling Scheme
35. Defendants GPR, GPCP, and Fenchurch operate as a coordinated "short and distort" enterprise. The scheme operates as follows: GPR and Fenchurch identify a publicly traded company as a target; GPCP, acting on Fenchurch's direction, establishes a short position in the target company's securities; and GPR then publishes inflammatory and misleading "research" reports containing false allegations designed to drive down the target company's stock price, enabling GPCP to cover its short position at a profit.
36. This coordinated scheme is not a legitimate exercise of financial journalism or research. It is a profit-driven enterprise in which the research reports serve as weapons designed to manipulate market prices for the direct financial benefit of Fenchurch and GPCP's investors.
37. Prior to the publication of the first defamatory report on February 7, 2024, GPCP, acting at Fenchurch's direction, established a short position of approximately 680,000 shares of RDGM stock. At the pre-publication closing price of $92.14 per share, this short position had a notional value of approximately $62.66 million — a massive, concentrated bet against RGC's stock price.
38. GPR disclosed its short position in boilerplate disclaimers appended to the end of each report. These disclaimers, however, were generic and perfunctory and did not disclose the size, timing, or magnitude of the short position. More fundamentally, the presence of a disclosure does not immunize Defendants from liability for the knowing or reckless publication of false statements of fact. The financial magnitude of the short position and its coordination with the publication timing demonstrate that profit — not legitimate research or public interest — was the primary motive for the publications.
39. Fenchurch personally directed both the short-position sizing and the timing of the publications to maximize trading profit. Upon information and belief, Fenchurch determined the publication schedule — three reports released at weekly intervals over a fourteen-day period — to sustain downward pressure on RDGM's stock price and to prevent the price from recovering between publications, thereby maximizing the profitability of GPCP's short position.
C. The Defamatory Publications
1. Report 1: "House of Cards: Redstone Gaming's Manufactured Earnings" (February 7, 2024)
40. On February 7, 2024, GPR published a report entitled "House of Cards: Redstone Gaming's Manufactured Earnings" (the "First Report") on grizzlypeakresearch.com. The First Report was simultaneously distributed to GPR's approximately 142,000 followers via the @GrizzlyPeakRes social media account on the X platform (formerly Fenmore Solutions), and was subsequently picked up and redistributed by financial news aggregators, investment blogs, and electronic trading platforms.
41. The First Report was approximately 48 pages in length. It was authored by Ava Lin and Tobias Fenchurch and bore the GPR logo and branding. The report purported to be the product of "extensive forensic analysis" and "months of investigative research."
42. The core false allegation of the First Report was that RGC fabricated approximately $410 million of its FY 2023 revenue through fictitious intercompany transactions between RGC's operating subsidiaries. The report alleged, among other things, that RGC inflated revenue by recording sham licensing fees between Redstone Digital and Crimson Studios that lacked economic substance and were designed to artificially inflate consolidated revenue figures.
43. This allegation is demonstrably false. RGC's FY 2023 consolidated financial statements, including all intercompany transactions, were audited by Pinnacle Audit & Advisory LLP, which issued an unqualified audit opinion on February 2, 2024. In the course of its audit, Pinnacle independently verified all revenue figures, tested intercompany transactions for proper elimination in consolidation, and assessed the economic substance of licensing arrangements between RGC's divisions. Pinnacle's audit workpapers confirm that no intercompany-transaction irregularities exist. Moreover, in response to the First Report, Pinnacle conducted a supplemental forensic audit engagement that specifically focused on the revenue categories identified by GPR; that supplemental engagement confirmed the accuracy and integrity of RGC's reported revenue of $3.42 billion.
44. Defendants knew or should have known that the revenue-fabrication allegation was false. Pinnacle's unqualified audit opinions on RGC's FY 2021–2023 financial statements were publicly available at the time of the First Report's publication. A competent financial analyst, conducting research in good faith, would have reviewed and given due weight to the auditor's findings before publishing allegations of revenue fabrication. Defendants failed to do so because their objective was not accuracy but market manipulation.
45. The immediate market impact of the First Report was severe. RDGM closed at $84.37 on February 7, 2024, representing a single-day decline of $7.77 per share, or approximately 8.4%, from the prior day's closing price of $92.14. Trading volume in RDGM on February 7 was approximately 11.2 million shares, compared to the average daily trading volume of approximately 1.4 million shares over the preceding 30 trading days — an increase of approximately 700%.
2. Report 2: "Rigged Reels: How Redstone's Slot Software Cheats the Regulators" (February 14, 2024)
46. On February 14, 2024, one week after the First Report, GPR published a second report entitled "Rigged Reels: How Redstone's Slot Software Cheats the Regulators" (the "Second Report") on grizzlypeakresearch.com and via the @GrizzlyPeakRes social media account. Like the First Report, the Second Report was widely disseminated across financial media and investment platforms.
47. The Second Report was approximately 36 pages in length. It was authored by Ava Lin and Tobias Fenchurch and bore the GPR logo and branding. The report purported to present the results of "independent technical analysis" of RGC's electronic gaming systems.
48. The core false allegation of the Second Report was that RGC manipulated its random-number-generator ("RNG") software — the software that governs the randomness and fairness of electronic gaming machines — to inflate payout statistics reported to the Nevada Gaming Control Board. The report alleged that RGC's slot machines were programmed to produce artificially high payout percentages during periods when regulatory testing was anticipated, while reverting to lower payout rates during normal operations, thereby deceiving regulators and consumers.
49. This allegation is demonstrably false. In response to the Second Report, the Nevada Gaming Control Board initiated an independent RNG audit of RGC's electronic gaming systems. That audit was conducted by the NGCB's Technology Division and concluded on March 29, 2024. The NGCB's audit cleared RGC's systems entirely, finding no evidence whatsoever of RNG manipulation, software tampering, or discrepancies between tested and operational payout rates. The NGCB issued a written report of its findings and communicated those findings to RGC on April 2, 2024.
50. Ava Lin, the co-author of the Second Report, did not contact the Nevada Gaming Control Board before publication to verify any of the claims made in the report. A responsible researcher investigating allegations of RNG manipulation would, at a minimum, have consulted the regulatory authority responsible for testing and certifying the very systems at issue. Lin's failure to do so reflects either a knowing disregard for the truth or a reckless indifference to the accuracy of the report's central allegation.
51. The market impact of the Second Report compounded the damage caused by the First Report. RDGM closed at $78.52 on February 14, 2024, representing a cumulative decline of $13.62 per share, or approximately 14.8%, from the pre-publication closing price of $92.14. The sequential timing of the Second Report — published exactly one week after the First Report, before the market had fully digested and evaluated the claims in the First Report — was calculated to sustain and deepen the downward pressure on RDGM's stock price.
3. Report 3: "Double Down on Fraud: Redstone's Related-Party Shell Game" (February 21, 2024)
52. On February 21, 2024, one week after the Second Report, GPR published a third report entitled "Double Down on Fraud: Redstone's Related-Party Shell Game" (the "Third Report") on grizzlypeakresearch.com and via the @GrizzlyPeakRes social media account. Like its predecessors, the Third Report was widely disseminated.
53. The Third Report was approximately 29 pages in length. It was authored by Ava Lin and Tobias Fenchurch and bore the GPR logo and branding.
54. The core false allegation of the Third Report was that RGC's Chief Executive Officer, Marcus J. Calloway, engaged in undisclosed related-party dealings with a purported shell entity called "Vermilion Holdings LLC." The report alleged that Calloway secretly controlled Vermilion Holdings LLC and used it to siphon funds from RGC through undisclosed consulting and service agreements, in violation of RGC's related-party transaction policies and SEC disclosure requirements.
55. This allegation was based on incomplete information and was materially misleading. Subsequent investigation has established that the allegation was unfounded. Vermilion Holdings LLC is a legitimate, independently owned entity with no ownership or control relationship to Calloway or any other RGC officer or director. The transactions between RGC and Vermilion Holdings LLC were arm's-length commercial transactions that were properly disclosed in RGC's public filings and were reviewed and approved by RGC's Audit Committee in accordance with RGC's Related-Party Transaction Policy.
56. In response to the GPR reports, the SEC opened an informal inquiry in March 2024 to examine the allegations of financial fraud, RNG manipulation, and undisclosed related-party transactions. After conducting its own investigation, the SEC closed its inquiry with no action on August 16, 2024, effectively determining that the allegations in the GPR reports did not warrant enforcement proceedings.
57. Of particular significance, Fenchurch instructed Lin to publish the Third Report before completing verification of the Vermilion Holdings allegation. Internal communications, obtained through discovery, reveal that Lin herself harbored doubts about the strength and accuracy of the related-party allegations. Despite these doubts, and despite the incomplete state of the investigation, Fenchurch directed that the Third Report be published on February 21, 2024, in order to maintain the cadence of weekly publications and to continue the downward pressure on RDGM's stock price while GPCP's short position remained open.
58. The market impact of the Third Report was devastating. RDGM closed at $72.80 on February 21, 2024 — the trough price — representing a cumulative decline of $19.34 per share, or approximately 21.0%, from the pre-publication closing price of $92.14. At this trough price, the aggregate loss in RGC's market capitalization was approximately $1.427 billion ($19.34 × 73,800,000 shares).
D. The Falsity of the Reports
59. All three core allegations — revenue fabrication, RNG manipulation, and undisclosed related-party dealings — have been independently investigated and found baseless by multiple third parties with no affiliation to or financial interest in RGC:
(a) Revenue Fabrication. Pinnacle Audit & Advisory LLP confirmed the accuracy of RGC's FY 2023 revenue of $3.42 billion through both its original audit engagement (opinion issued February 2, 2024) and a supplemental forensic audit engagement conducted in response to the First Report. Pinnacle's forensic audit specifically examined the intercompany transactions identified by GPR and confirmed that all such transactions were properly eliminated in consolidation, had genuine economic substance, and were accurately reflected in RGC's consolidated financial statements.
(b) RNG Manipulation. The Nevada Gaming Control Board completed an independent RNG audit of RGC's electronic gaming systems on March 29, 2024. The NGCB's Technology Division tested all RNG software deployed in RGC's Nevada properties, analyzed payout rates over extended periods, and compared tested results to reported figures. The NGCB found no evidence of RNG manipulation, software tampering, or discrepancies between tested and operational payout rates. The NGCB cleared RGC's gaming systems entirely.
(c) Related-Party Transactions. The SEC opened an informal inquiry in March 2024 based on the allegations in the GPR reports. The SEC's Division of Enforcement reviewed RGC's disclosures, corporate governance records, and transaction documentation relating to Vermilion Holdings LLC. The SEC closed its inquiry with no enforcement action on August 16, 2024, finding no basis to proceed.
60. The reports were not the product of legitimate financial research. They were designed and timed to create market panic to benefit Defendants' pre-established short position in RDGM stock. The coordinated publication of three reports over fourteen days, each escalating in the severity of its allegations, was calculated to produce a sustained decline in RDGM's stock price that would maximize the profitability of GPCP's 680,000-share short position.
E. Actual Malice
61. Defendants published the reports with knowledge of their falsity or with reckless disregard for the truth. The evidence of actual malice is overwhelming:
(a) Disregard of Independent Audit Opinions. Fenchurch and Lin were aware, or should have been aware, that Pinnacle Audit & Advisory LLP had issued unqualified ("clean") audit opinions on RGC's consolidated financial statements for FY 2021, FY 2022, and FY 2023. These audit opinions were publicly available and readily accessible through RGC's SEC filings and on Pinnacle's website. Defendants failed to reconcile their revenue-fabrication allegations with the auditor's findings — a failure that is inexplicable unless Defendants knew their allegations were false or did not care whether they were true or false.
(b) Failure to Contact the NGCB. Lin did not contact the Nevada Gaming Control Board before publishing allegations that RGC manipulated its RNG software to deceive regulators. The NGCB is the primary regulatory authority responsible for testing and certifying the very gaming systems that GPR alleged were manipulated. A good-faith researcher investigating allegations of this nature and severity would, at a bare minimum, have contacted the NGCB to request comment or to verify whether the regulatory authority had detected any irregularities. Lin's failure to do so demonstrates a reckless disregard for the truth.
(c) Premature Publication of the Third Report. Fenchurch instructed Lin to publish the Third Report — containing the Vermilion Holdings related-party allegation — before completing verification of the underlying factual claims. Internal communications obtained through discovery reveal that Lin herself expressed doubts about the accuracy and completeness of the related-party allegations prior to publication. Despite these doubts, Fenchurch directed that the report be published immediately to maintain the weekly publication cadence and to sustain downward pressure on RDGM's stock price. This direction to publish before verification constitutes, at a minimum, reckless disregard for the truth.
(d) The Coordinated Short Position. The massive short position of 680,000 shares of RDGM stock, established prior to the first publication and coordinated with the sequential release of three reports over a fourteen-day period, evidences a calculated scheme to profit from market manipulation rather than bona fide journalism or objective financial research. The position was sized at approximately $62.66 million in notional value — an enormous bet that required certainty of a price decline, not merely a good-faith belief that RGC's stock was overvalued.
(e) Profit Motive. GPR's profit motive — estimated gross short-sale profits of approximately $13.15 million for GPCP — overwhelmed any pretense of objective inquiry. The magnitude of the financial incentive to publish false and inflammatory reports, combined with the other indicia of malice described herein, demonstrates that Defendants' publications were motivated by greed, not by any genuine concern for investor protection or market integrity.
F. Damages to Plaintiff
1. Stock-Price Decline and Market-Capitalization Loss
62. The false reports published by Defendants caused a severe and sustained decline in the market price of RDGM stock. The timeline of the stock-price decline is as follows:
63. With 73.8 million shares of common stock outstanding, the aggregate decline in RGC's market capitalization at the trough was approximately $1.427 billion ($19.34 × 73,800,000 shares ≈ $1,427,292,000).
64. As of January 2025, RDGM's stock price has only partially recovered. RGC's market capitalization as of that date was approximately $6.1 billion, compared to the pre-publication market capitalization of approximately $6.8 billion — a persistent deficit of approximately $700 million that is directly attributable to the lingering reputational effects of Defendants' false publications.
65. Plaintiff has retained an expert economist who has conducted an event-study analysis to isolate the stock-price decline attributable to the defamatory reports from market-wide and industry-specific factors. Based on that analysis, Plaintiff's expert has calculated event-study-adjusted damages of $327.6 million.
2. Out-of-Pocket Costs
66. In addition to the stock-price decline and market-capitalization loss, Plaintiff has incurred substantial out-of-pocket costs as a direct result of Defendants' false publications, including the following:
(a) Crisis-Communications and Public Relations Costs. RGC engaged Crestline Equity Partners Group Inc. to manage the public-relations crisis created by the GPR reports, including preparing and disseminating public responses, coordinating with financial media, conducting investor outreach, and managing RGC's public messaging. The fees and costs incurred to Crestline Equity Partners Group Inc. total $2.18 million.
(b) Internal Investigation and Supplemental Forensic Audit. RGC engaged Pinnacle Audit & Advisory LLP to conduct a supplemental forensic audit engagement specifically addressing the allegations in the First Report regarding revenue fabrication and intercompany transactions. RGC also conducted an extensive internal investigation into the allegations in all three reports. The fees and costs incurred to Pinnacle for the supplemental forensic audit engagement and for the internal investigation total $1.46 million.
(c) Regulatory-Response Costs. RGC engaged separate Nevada gaming counsel, the law firm of Hargrove & Sato LLP, 300 South 4th Street, Suite 1800, Las Vegas, Nevada 89101, to assist with RGC's response to the Nevada Gaming Control Board's RNG audit and to the SEC's informal inquiry. The legal fees and costs incurred to Hargrove & Sato LLP total $987,000.
67. In total, Plaintiff has incurred out-of-pocket costs of $4.627 million as a direct result of Defendants' false publications ($2.18 million + $1.46 million + $987,000 = $4,627,000).
3. Defendants' Unjust Enrichment
68. While Plaintiff and its shareholders suffered massive losses, Defendants profited handsomely from their scheme. GPCP's estimated short-sale profit on its 680,000-share short position is approximately $13.15 million, calculated as the difference between the pre-publication stock price of $92.14 per share and the estimated average cover price of $72.80 per share, multiplied by 680,000 shares: ($92.14 − $72.80) × 680,000 = $13,151,200.
69. These profits were ill-gotten gains derived directly from Defendants' tortious conduct. Plaintiff is entitled to disgorgement of these profits, in addition to compensatory damages.
4. Reputational Harm
70. Defendants' false publications caused severe and lasting damage to RGC's business reputation among investors, securities analysts, gaming regulators, licensees, business partners, and the investing public. The reports accused RGC of financial fraud, regulatory manipulation, and self-dealing by its CEO — among the most serious allegations that can be leveled against a publicly traded company. Even after the allegations were disproven, the stigma of the accusations continues to affect RGC's reputation, its relationships with stakeholders, and its ability to attract investment.
71. RGC has experienced disruption of existing and prospective business relationships as a direct result of the false publications. Upon information and belief, at least two potential licensing partners for Redstone Digital's iGaming platform delayed or suspended negotiations following the publication of the reports, and multiple institutional investors reduced their positions in RDGM stock during the period of the publications.
72. RGC will continue to incur costs to restore its market credibility and business reputation. These costs, which are ongoing and not yet fully ascertainable, include increased investor-relations expenditures, enhanced compliance and governance initiatives undertaken to reassure stakeholders, and additional audit and advisory fees.
G. Alter Ego / Unity of Interest Allegations
73. GPR, GPCP, GP LLC, and Fenchurch operate as a single, integrated enterprise. They are alter egos of one another, and each is the agent of the others, with respect to the acts and omissions alleged in this Complaint.
74. Fenchurch is the sole managing member of both GPR and GP LLC (the sole general partner of GPCP). Fenchurch thus exercises unilateral control over all material decisions of both the research and publication arm (GPR) and the trading and investment arm (GPCP) of the enterprise. There is no meaningful separation of management, decision-making, or oversight between the entities.
75. GPR and GPCP share the same principal office at 44 Maiden Lane, 7th Floor, San Francisco, California 94108. Upon information and belief, GPR and GPCP share office space, staff, infrastructure, and operational resources.
76. GPR's publication activities and GPCP's trading activities are coordinated for the mutual benefit of Fenchurch and the investors in GPCP. The reports are timed and designed to maximize the profitability of GPCP's short positions, and the profits from GPCP's trading activities flow, directly or indirectly, to GPR and Fenchurch in the form of management fees, profit allocations, and carried interest.
77. There is a unity of interest and ownership between GPR, GPCP, GP LLC, and Fenchurch such that the separate personalities of the entities no longer exist. The entities are inadequately capitalized relative to the magnitude of the liabilities they create through their tortious conduct. Adhering to the fiction of separate entities would sanction a fraud, promote injustice, and permit Defendants to shield the profits of their tortious scheme from the reach of this Court's judgment.
V. FIRST CAUSE OF ACTION
Trade Libel (Cal. Civ. Code § 46(3))
(Against All Defendants)
78. Plaintiff incorporates and realleges each and every allegation set forth in paragraphs 1 through 77 above as though fully set forth herein.
79. Defendants published three reports — the First Report ("House of Cards: Redstone Gaming's Manufactured Earnings," February 7, 2024), the Second Report ("Rigged Reels: How Redstone's Slot Software Cheats the Regulators," February 14, 2024), and the Third Report ("Double Down on Fraud: Redstone's Related-Party Shell Game," February 21, 2024) — containing false statements of fact about Plaintiff's business, products, services, and financial condition.
80. The false statements in the reports include, but are not limited to, the following: (a) that RGC fabricated approximately $410 million of its FY 2023 revenue through fictitious intercompany transactions; (b) that RGC manipulated its RNG software to inflate payout statistics reported to the Nevada Gaming Control Board; and (c) that RGC's CEO, Marcus J. Calloway, engaged in undisclosed related-party dealings with a purported shell entity called Vermilion Holdings LLC.
81. The statements were published to third parties, including investors, securities analysts, financial journalists, gaming regulators, and the general investing public, via grizzlypeakresearch.com and the @GrizzlyPeakRes social media account (approximately 142,000 followers). The reports were further disseminated through financial news aggregators, investment blogs, and electronic trading platforms, reaching a worldwide audience.
82. The statements were false. The revenue-fabrication allegation ($410 million) was unfounded and has been disproven by the supplemental forensic audit conducted by Pinnacle Audit & Advisory LLP. The RNG-manipulation allegation was disproven by the Nevada Gaming Control Board's independent RNG audit, which concluded on March 29, 2024, and cleared RGC's gaming systems entirely. The related-party allegation was based on incomplete information, was materially misleading, and was found to be without basis by the SEC, which closed its informal inquiry with no action on August 16, 2024.
83. Defendants published the false statements with actual malice — that is, with knowledge of their falsity or with reckless disregard for the truth — as evidenced by the following:
(a) The pre-established short position of approximately 680,000 shares of RDGM stock, representing a notional value of approximately $62.66 million, and the estimated gross short-sale profits of approximately $13.15 million derived from covering that position after the publications;
(b) Fenchurch's instruction to Lin to publish the Third Report before completing verification of the Vermilion Holdings related-party allegation;
(c) Lin's acknowledged doubts about the accuracy and completeness of the related-party allegations, as reflected in internal communications;
(d) Defendants' failure to consult publicly available audit opinions issued by Pinnacle Audit & Advisory LLP on RGC's FY 2021–2023 financial statements;
(e) Lin's failure to contact the Nevada Gaming Control Board before publishing allegations that RGC manipulated its RNG software to deceive regulators; and
(f) The coordinated timing and sequencing of three reports over a fourteen-day period, designed to sustain and deepen the decline in RDGM's stock price for the benefit of GPCP's short position.
84. Plaintiff suffered special damages as a direct and proximate result of Defendants' trade libel, including but not limited to: a stock-price decline of 21.0% (from $92.14 to $72.80 per share); an aggregate market-capitalization loss of approximately $1.427 billion at the trough; event-study-adjusted damages of $327.6 million; out-of-pocket costs of $4.627 million; and severe, lasting damage to Plaintiff's business reputation.
85. Defendants' conduct was malicious, oppressive, and despicable, and was undertaken with a willful and conscious disregard of Plaintiff's rights. Plaintiff is therefore entitled to compensatory damages in an amount to be proven at trial, disgorgement of Defendants' ill-gotten short-sale profits of approximately $13.15 million, punitive and exemplary damages in an amount sufficient to punish Defendants and deter similar conduct, and injunctive relief.
VI. SECOND CAUSE OF ACTION
Intentional Interference with Prospective Economic Advantage
(Against All Defendants)
86. Plaintiff incorporates and realleges each and every allegation set forth in paragraphs 1 through 85 above as though fully set forth herein.
87. At all relevant times, Plaintiff had existing and prospective economic relationships with a broad range of parties, including, without limitation: institutional and retail investors who held or might purchase RDGM stock; securities analysts who covered RDGM and whose research reports and recommendations influenced investment decisions; gaming regulators in Nevada, New Jersey, and Mississippi whose continued approval and confidence was essential to Plaintiff's business operations; licensees of Plaintiff's proprietary gaming platforms; business partners, including potential iGaming joint-venture partners and entertainment content distributors; and the investing public at large.
88. Defendants knew of these existing and prospective economic relationships. Defendants' business model is predicated on identifying publicly traded companies with extensive investor, analyst, and regulatory relationships and publishing inflammatory reports designed to disrupt those relationships and drive down the target company's stock price. Defendants' reports specifically discussed and purported to analyze Plaintiff's relationships with investors, regulators, and business partners.
89. Defendants engaged in intentional wrongful conduct — publishing knowingly false reports for the purpose of profiting from short sales of RDGM stock — that was designed to and did interfere with Plaintiff's existing and prospective economic relationships. Defendants' conduct was independently wrongful apart from the interference itself, constituting trade libel, negligent misrepresentation, and unfair business practices as set forth elsewhere in this Complaint.
90. As a direct and proximate result of Defendants' intentional interference, Plaintiff suffered disruption of its business relationships with investors, analysts, regulators, and business partners; loss of investor confidence, as reflected in the 21.0% decline in RDGM's stock price and the persistent approximately $700 million deficit in market capitalization; delay and disruption of potential licensing and joint-venture negotiations; and the economic harm described in paragraphs 62 through 72 above, including the stock-price decline, out-of-pocket costs, and reputational harm.
91. Defendants' conduct was malicious, oppressive, and despicable, and was undertaken with a willful and conscious disregard of Plaintiff's rights. Plaintiff is entitled to compensatory damages in an amount to be proven at trial, disgorgement of Defendants' ill-gotten profits, punitive and exemplary damages, and injunctive relief.
VII. THIRD CAUSE OF ACTION
Unfair Business Practices (Cal. Bus. & Prof. Code § 17200)
(Against All Defendants)
92. Plaintiff incorporates and realleges each and every allegation set forth in paragraphs 1 through 91 above as though fully set forth herein.
93. California Business and Professions Code section 17200 prohibits "any unlawful, unfair or fraudulent business act or practice." Defendants' conduct — publishing knowingly false "research" reports to manipulate the market price of a publicly traded security for the purpose of generating short-selling profits — constitutes unlawful, unfair, and/or fraudulent business practices within the meaning of section 17200.
94. Defendants' conduct is "unlawful" because it violates California Civil Code section 46(3) (trade libel) and constitutes the tort of intentional interference with prospective economic advantage, as set forth in the First and Second Causes of Action above. Business practices that violate other laws, whether statutory or common law, are "unlawful" within the meaning of section 17200.
95. Defendants' conduct is "unfair" because it offends established public policy against market manipulation and securities fraud; is immoral, unethical, oppressive, unscrupulous, and substantially injurious to Plaintiff, Plaintiff's shareholders, and the investing public; and the injury caused by Defendants' conduct is not outweighed by any countervailing benefit to consumers or competition. The practice of establishing large short positions and then publishing false reports to drive down stock prices is antithetical to the integrity of the securities markets and the protection of investors.
96. Defendants' conduct is "fraudulent" because the three reports, presented as the product of extensive research and investigation, are likely to — and did — deceive members of the investing public into believing that RGC had engaged in financial fraud, regulatory manipulation, and undisclosed self-dealing, causing those investors to sell their RDGM shares at artificially depressed prices for the benefit of Defendants' short position.
97. As a direct and proximate result of Defendants' unfair business practices, Plaintiff has suffered injury in fact and has lost money and property. Plaintiff seeks restitution and disgorgement of Defendants' ill-gotten gains, including the approximately $13.15 million in estimated short-sale profits realized by GPCP, and injunctive relief prohibiting Defendants from continuing or repeating the unlawful, unfair, and fraudulent business practices alleged herein.
VIII. FOURTH CAUSE OF ACTION
Negligent Misrepresentation
(Against All Defendants)
98. Plaintiff incorporates and realleges each and every allegation set forth in paragraphs 1 through 97 above as though fully set forth herein. This Fourth Cause of Action is asserted for the first time in this First Amended Complaint.
99. Defendants made false representations of material fact in the three reports concerning Plaintiff's financial performance, gaming-software integrity, and related-party transactions. Specifically, Defendants represented, among other things, that: (a) RGC fabricated approximately $410 million of its FY 2023 revenue through fictitious intercompany transactions; (b) RGC manipulated its RNG software to inflate payout statistics reported to the Nevada Gaming Control Board; and (c) RGC's CEO, Marcus J. Calloway, engaged in undisclosed related-party dealings with a purported shell entity called Vermilion Holdings LLC. Each of these representations was false.
100. Defendants had no reasonable grounds for believing the representations to be true at the time they were made. The absence of reasonable grounds for belief is evidenced by the following:
(a) The availability of Pinnacle Audit & Advisory LLP's unqualified ("clean") audit opinions on RGC's FY 2021–2023 financial statements, which were publicly available and directly contradicted the revenue-fabrication allegations;
(b) Lin's failure to contact the Nevada Gaming Control Board before publishing the RNG-manipulation allegation, despite the fact that the NGCB is the primary regulatory authority responsible for testing and certifying the gaming systems that Defendants alleged were manipulated;
(c) Fenchurch's instruction to Lin to publish the related-party allegation before completing verification of the Vermilion Holdings claims, demonstrating that Defendants published the Third Report without a reasonable basis for believing its central allegation to be true; and
(d) Lin's internal expressions of doubt about the accuracy and completeness of the related-party allegations, which Fenchurch disregarded in directing the premature publication of the Third Report.
101. Defendants intended to induce Plaintiff's investors and the investing public to sell RDGM shares, thereby driving down the stock price and enabling Defendants to cover GPCP's short position profitably. Defendants' reports were designed, written, and disseminated for this express purpose. The boilerplate disclaimer acknowledging a short position, while technically present, did not negate Defendants' intent to induce reliance on the false representations contained in the body of the reports.
102. Plaintiff and Plaintiff's investors justifiably relied on the false representations contained in the reports. The reports were presented as the product of extensive, professional-grade research and investigation. They contained detailed charts, tables, financial analyses, and citations to public records that lent them an air of credibility and authority. Given their apparent thoroughness and the large social media following of the @GrizzlyPeakRes account (approximately 142,000 followers), the reports were reasonably relied upon by investors and analysts in making investment decisions regarding RDGM stock.
103. As a direct and proximate result of Defendants' negligent misrepresentations, Plaintiff suffered damages including the stock-price decline of 21.0% (from $92.14 to $72.80 per share), aggregate market-capitalization loss of approximately $1.427 billion at the trough, event-study-adjusted damages of $327.6 million, out-of-pocket costs of $4.627 million, and severe, lasting reputational harm.
IX. PRAYER FOR RELIEF
WHEREFORE, Plaintiff Redstone Gaming Corp. respectfully prays for judgment against Defendants Grizzly Peak Research LLC, Grizzly Peak Capital Partners LP, and Tobias Fenchurch, jointly and severally, as follows:
1. For compensatory damages in an amount to be proven at trial, including but not limited to lost market capitalization (event-study-adjusted damages of $327.6 million as determined by Plaintiff's expert), out-of-pocket costs of $4.627 million, and damages to business reputation and business relationships;
2. For disgorgement of Defendants' ill-gotten short-sale profits of approximately $13.15 million;
3. For punitive and exemplary damages in an amount sufficient to punish Defendants for their malicious, oppressive, and despicable conduct and to deter similar conduct in the future, in an amount to be determined at trial;
4. For a permanent injunction prohibiting Defendants and each of them, and their officers, agents, employees, representatives, and any persons acting in concert with them, from republishing the three reports identified herein or any substantially similar statements concerning Plaintiff;
5. For a permanent injunction prohibiting Defendants and each of them, and their officers, agents, employees, representatives, and any persons acting in concert with them, from trading in RDGM securities, including common stock, options, and any other derivative instruments;
6. For restitution pursuant to California Business and Professions Code section 17200;
7. For prejudgment interest at the legal rate from the date of each publication through the date of judgment, and for post-judgment interest at the legal rate as allowed by law;
8. For costs of suit incurred herein; and
9. For such other and further relief as this Court deems just and proper.
X. DEMAND FOR JURY TRIAL
Plaintiff Redstone Gaming Corp. hereby demands a trial by jury on all issues so triable in this action.
Dated: March 18, 2024
CALDERWOOD & HARKNESS LLP
By: ________
Francesca Morano (SBN 247891) Samuel Eklund (SBN 283415) Carlos Espinoza (SBN 301762) Hannah Brinkley (SBN 319048)
333 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 680-7200 Facsimile: (213) 680-7201
Attorneys for Plaintiff Redstone Gaming Corp.
VERIFICATION
I, Derek Olafson, declare as follows:
I am the General Counsel and Executive Vice President, Legal Affairs of Redstone Gaming Corp., the Plaintiff in this action. I am authorized to make this verification on behalf of Plaintiff. I have read the foregoing First Amended Complaint and know its contents.
The facts stated in the foregoing First Amended Complaint are true of my own knowledge, except as to those matters which are stated on information and belief, and as to those matters, I believe them to be true.
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
Executed on March 18, 2024, at Las Vegas, Nevada.
________________________________________
Derek Olafson General Counsel and Executive Vice President, Legal Affairs Redstone Gaming Corp.