original-complaint.docx

1033-00006 · Redstone Gaming Corp · Pleadings & Motions

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Email: fmorano@calderwoodharkness.com

Attorneys for Plaintiff Redstone Gaming Corp.

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF LOS ANGELES

I. INTRODUCTION

1. This action arises from Defendant Grizzly Peak Research LLC's ("GPR" or "Grizzly Peak") publication and dissemination of knowingly false and defamatory reports targeting Plaintiff Redstone Gaming Corp. ("RGC" or "Redstone"), a publicly traded gaming and media-entertainment company listed on the Nasdaq Stock Market under the ticker symbol "RDGM." GPR's false publications were designed and intended to artificially depress the price of RGC's common stock so that GPR and its affiliated entities could profit from short sales of RDGM shares. This lawsuit seeks to hold GPR accountable for its campaign of deliberate falsehoods and to recover the substantial damages that RGC has suffered and will continue to suffer as a result.

2. GPR is a so-called "short-seller research" outfit that publishes reports about publicly traded companies in which GPR's principals and affiliated investment entities hold significant short positions. GPR's business model is simple and pernicious: GPR acquires a short position in a target company's stock, publishes a report containing sensational and false allegations of fraud, misconduct, or financial irregularity, and then profits when the target company's stock price declines in response to the publication. At the time of the publications at issue in this action, GPR and its affiliated fund, Grizzly Peak Capital Partners LP ("GPCP"), maintained a short position of approximately 680,000 shares of RDGM common stock, representing a notional value of approximately $62.66 million based on the pre-publication closing price of $92.14 per share. Every dollar of decline in RDGM's stock price translated directly into profit for GPR and its affiliates.

3. On or about February 7, 2024, GPR published a report titled "House of Cards: Redstone Gaming's Manufactured Earnings" (the "First Report" or "Report 1"), containing false allegations that RGC fabricated approximately $410 million in fiscal year 2023 revenue through fictitious intercompany transactions, engaged in regulatory manipulation, and participated in undisclosed related-party transactions. These allegations were made with knowledge of their falsity, or with reckless disregard for their truth or falsity, and for the express purpose of profiting from the resulting decline in RDGM's stock price.¹

¹ GPR's First Report was published on February 7, 2024, two days after the filing of this Complaint. This Complaint was filed on February 5, 2024, based on advance knowledge of GPR's intended publication, which was gleaned from unusual market activity in RDGM shares and options (including a significant increase in short interest and put-option volume in the days preceding the filing), as well as GPR's pre-publication social media activity on its verified account @GrizzlyPeakRes (which had approximately 142,000 followers at the time). On January 31, 2024, and again on February 2, 2024, GPR posted "teaser" messages on @GrizzlyPeakRes indicating that a major report on a "multi-billion-dollar gaming company" was forthcoming, which Plaintiff and its advisors reasonably understood to refer to RGC. This Complaint is based in part on the threatened and imminent publication of GPR's reports, and Plaintiff intends to supplement this Complaint with specific allegations regarding the content and falsity of GPR's publications following their release.

4. In addition to the First Report, upon information and belief, GPR was planning at the time of filing, and intends to publish, at least two additional reports targeting RGC: a second report alleging manipulation of random-number-generator ("RNG") software to inflate payout statistics reported to the Nevada Gaming Control Board (referred to herein as "Report 2" or the "Second Report"), and a third report alleging undisclosed related-party dealings between RGC's Chief Executive Officer, Marcus J. Calloway, and a purported shell entity called Vermilion Holdings LLC (referred to herein as "Report 3" or the "Third Report"). Each of GPR's anticipated reports is expected to contain false and defamatory allegations designed to further depress RDGM's stock price for GPR's financial benefit. Upon publication of Reports 2 and 3, Plaintiff intends to amend this Complaint to incorporate specific allegations concerning the content and falsity of those additional publications.

5. As a direct and proximate result of GPR's false publications, RDGM's stock price plummeted immediately upon the release of the First Report, falling from a closing price of $92.14 per share on February 6, 2024, to a closing price of $84.37 per share on February 7, 2024 — a decline of $7.77 per share, or approximately 8.4%, in a single trading session. This decline corresponded to an aggregate loss of approximately $573 million in market capitalization. The anticipated publication of GPR's additional reports threatens to cause further, substantial declines in RDGM's stock price and to inflict lasting damage on RGC's business reputation, its relationships with investors, regulators, business partners, and customers, and its ability to access capital markets on favorable terms.

6. By this action, Plaintiff seeks compensatory damages in an amount to be proven at trial, disgorgement and restitution of GPR's ill-gotten short-sale profits, punitive damages in an amount sufficient to deter GPR and others from engaging in similar predatory conduct, preliminary and permanent injunctive relief requiring the removal of GPR's false publications, and all other relief that this Court deems just and proper.

II. PARTIES

A. Plaintiff Redstone Gaming Corp.

7. Plaintiff Redstone Gaming Corp. ("RGC" or "Redstone") is a corporation organized and existing under the laws of the State of Nevada, with its principal place of business located at 8800 Crimson Ridge Parkway, Suite 1200, Las Vegas, Nevada 89113. RGC was incorporated in Nevada on June 14, 2007, and has continuously maintained its corporate status in good standing with the Nevada Secretary of State since that date.

8. RGC's registered agent for service of process in the State of Nevada is National Statutory Agents, Inc., located at 701 S. Carson Street, Suite 200, Carson City, Nevada 89701.

9. RGC is a publicly traded company whose common stock is listed and actively traded on the Nasdaq Stock Market under the ticker symbol "RDGM." RGC's Employer Identification Number is 88-0412793. RGC files periodic reports with the United States Securities and Exchange Commission ("SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. RGC is subject to the reporting requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder.

10. RGC owns and operates eleven casino-resort properties located across three states: seven properties in Nevada (including the flagship Crimson Ridge Resort & Casino in Las Vegas), two properties in New Jersey (including the Redstone Atlantic City Resort), and two properties in Mississippi (the Redstone Gulf Coast Casino and the Redstone Biloxi Grand). In addition to its brick-and-mortar gaming operations, RGC licenses proprietary electronic gaming platforms to third-party casino operators, operates a rapidly growing interactive gaming division known as Redstone Digital (which offers online sports betting and iGaming products in twelve states and the District of Columbia), and maintains a media-entertainment production arm known as Crimson Studios, which produces live entertainment programming, branded content, and original series distributed through major streaming platforms.

11. For the fiscal year ended December 31, 2023 ("FY 2023"), RGC reported consolidated revenue of approximately $3.42 billion and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $812 million, representing an EBITDA margin of approximately 23.7%. RGC's FY 2023 financial statements were independently audited by Pinnacle Audit & Advisory LLP, a nationally recognized registered public accounting firm, which issued an unqualified (clean) audit opinion with respect to those financial statements.

12. As of the close of trading on February 6, 2024 — the last trading day before the publication of GPR's First Report — RDGM shares traded at a closing price of $92.14 per share. As of that date, RGC had approximately 73.8 million shares of common stock outstanding, corresponding to a total market capitalization of approximately $6.8 billion.

13. RGC's executive leadership team includes: Marcus J. Calloway, Chief Executive Officer and Chairman of the Board; Priya Ramaswaran, Chief Financial Officer; Derek Olafson, Executive Vice President and General Counsel; and Janelle Hu, Vice President of Investor Relations and Corporate Communications. Each of these officers has served in his or her respective capacity for at least three years and has extensive experience in the gaming, entertainment, and financial industries.

B. Defendant Grizzly Peak Research LLC

14. Defendant Grizzly Peak Research LLC ("GPR" or "Grizzly Peak") 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 was formed in the State of Delaware on or about March 22, 2019.

15. GPR's registered agent for service of process in the State of Delaware is Pacific Corporate Services LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. GPR's Employer Identification Number is 85-3291064. GPR is registered to do business in the State of California and maintains its principal office and day-to-day operations in San Francisco, California.

16. GPR holds itself out as an independent research firm that publishes reports analyzing publicly traded companies. In practice, however, GPR's business model centers on publishing negative research reports about publicly traded companies in which GPR and its affiliated investment entities hold short positions, and profiting from the resulting decline in those companies' stock prices. GPR distributes its reports through a subscription-based website, grizzlypeakresearch.com, and through its social media account on the X platform (formerly Fenmore Solutions), @GrizzlyPeakRes, which had approximately 142,000 followers at the time of the publications at issue in this action. GPR's reports are widely read and disseminated within the investment community and are frequently cited by financial media outlets, algorithmic trading platforms, and market commentators.

17. GPR's Managing Member is Tobias "Toby" Fenchurch. Mr. Fenchurch exercises sole or primary control over GPR's operations, including the selection of target companies, the content of GPR's research reports, and the timing of their publication. GPR's Senior Analyst and co-author of the reports at issue in this action is Ava Lin. On information and belief, GPR employs or contracts with a small number of additional research analysts, but Mr. Fenchurch and Ms. Lin are the primary individuals responsible for the content of GPR's publications concerning RGC.

18. On information and belief, GPR is closely affiliated with Grizzly Peak Capital Partners LP ("GPCP"), a Delaware limited partnership that operates as a private investment fund with estimated assets under management of approximately $185 million. GPCP's general partner is Grizzly Peak Capital GP LLC, a Delaware limited liability company. Tobias Fenchurch is the sole managing member of Grizzly Peak Capital GP LLC and, through that entity, exercises exclusive investment discretion over GPCP's portfolio, including its short positions. GPCP held the short position in RDGM common stock at the time of the publications at issue in this action. On information and belief, GPR and GPCP share office space, personnel, and infrastructure at 44 Maiden Lane, 7th Floor, San Francisco, California 94108, and operate as a single, coordinated enterprise for the purpose of profiting from the publication of false and misleading short-seller reports.

III. JURISDICTION AND VENUE

19. This Court has jurisdiction over this action pursuant to the California Constitution, Article VI, Section 10, as the amount in controversy exceeds the jurisdictional minimum of this Court. The damages suffered by Plaintiff as a result of Defendant's wrongful conduct amount to hundreds of millions of dollars, well in excess of any applicable jurisdictional threshold.

20. Venue is proper in the County of Los Angeles pursuant to California Code of Civil Procedure Section 395 because a substantial part of the tortious conduct at issue — including the publication, online dissemination, and receipt of GPR's false and defamatory reports — occurred in and caused harm within the County of Los Angeles. GPR's reports were published on the internet and were received, read, and relied upon by RDGM investors, securities analysts, financial journalists, institutional investment managers, and members of the general public located in Los Angeles County. RGC maintains significant business operations in Los Angeles County, including the offices of Crimson Studios, its media-entertainment production arm, located at 10250 Constellation Boulevard, Suite 2700, Century City, California 90067. RGC also maintains substantial investor relations and business development operations directed at institutional investors and entertainment-industry partners located in Los Angeles County.

21. This Court has personal jurisdiction over Defendant GPR because GPR purposefully directed its tortious conduct into the State of California. GPR's principal office is located in San Francisco, California, and GPR conducts its day-to-day business operations in California. GPR's reports were published via the internet and were specifically targeted at RGC, a company with substantial business operations, employees, investors, and business partners in California, including in Los Angeles County. GPR's tortious conduct caused foreseeable injury to RGC in California. The exercise of jurisdiction over GPR is consistent with traditional notions of fair play and substantial justice under both the California long-arm statute (Cal. Code Civ. Proc. § 410.10) and the Due Process Clause of the Fourteenth Amendment to the United States Constitution.

IV. FACTUAL ALLEGATIONS

A. Redstone Gaming Corp.'s Business and Market Position

22. RGC is one of the leading gaming and entertainment companies in the United States, with a diversified portfolio of gaming properties, technology platforms, and media assets. RGC owns and operates eleven casino-resort properties across three states — seven in Nevada, two in New Jersey, and two in Mississippi — serving millions of guests annually. RGC's flagship property, the Crimson Ridge Resort & Casino in Las Vegas, is a premier destination on the Las Vegas Strip, featuring approximately 3,200 guest rooms and suites, over 180,000 square feet of gaming floor space, multiple award-winning restaurants, a 5,000-seat entertainment venue, and a full-service spa and wellness center. In addition to its physical properties, RGC operates proprietary electronic gaming platforms that are licensed to third-party casino operators in multiple jurisdictions, providing a recurring, high-margin revenue stream. RGC's interactive gaming division, Redstone Digital, offers online sports betting and iGaming products in twelve states and the District of Columbia, and has experienced rapid growth since its launch in 2020, achieving net revenue of approximately $438 million in FY 2023. RGC's media-entertainment production arm, Crimson Studios, produces live entertainment programming, branded content, and original series for distribution through major streaming platforms, further diversifying RGC's revenue base and enhancing its brand visibility.

23. RGC has a strong track record of financial performance and consistent revenue growth. For FY 2023, RGC reported consolidated revenue of approximately $3.42 billion, representing year-over-year growth of approximately 7.3% compared to FY 2022 consolidated revenue of approximately $3.19 billion. RGC's EBITDA for FY 2023 was approximately $812 million, representing an EBITDA margin of approximately 23.7%, which is among the highest in the domestic gaming industry. RGC's net income for FY 2023 was approximately $327 million, or $4.43 per diluted share. RGC's balance sheet is well-capitalized, with total assets of approximately $8.9 billion and a net leverage ratio of approximately 3.2x EBITDA as of December 31, 2023.

24. RGC's financial statements for fiscal years 2021, 2022, and 2023 were independently audited by Pinnacle Audit & Advisory LLP ("Pinnacle"), a nationally recognized registered public accounting firm. The engagement partner for each of these audits was Walter Ng, CPA, a partner with over twenty-five years of experience auditing publicly traded companies in the gaming, hospitality, and entertainment industries. Pinnacle issued unqualified (clean) audit opinions for each of FY 2021, FY 2022, and FY 2023, confirming that RGC's consolidated financial statements presented fairly, in all material respects, the financial position of RGC and its subsidiaries in conformity with United States generally accepted accounting principles ("GAAP"). At no time during its engagement did Pinnacle identify any material weakness or significant deficiency in RGC's internal controls over financial reporting, nor did Pinnacle identify any irregularities, fraud, or misstatement requiring restatement or qualification of its audit opinion.

25. As of the close of trading on February 6, 2024, the last trading day before the publication of GPR's First Report, RDGM common stock traded at a closing price of $92.14 per share. At that price, and with approximately 73.8 million shares of common stock outstanding, RGC's total market capitalization was approximately $6.8 billion. RDGM was covered by at least fourteen sell-side equity research analysts at major financial institutions, and the consensus analyst price target for RDGM as of February 6, 2024, was approximately $103.00 per share, reflecting widespread confidence in RGC's financial performance and growth prospects. RDGM had an average daily trading volume of approximately 1.9 million shares over the sixty trading days preceding February 7, 2024.

B. Grizzly Peak Research LLC's Short-Selling Business Model

26. GPR's business model is predicated on the publication of sensational negative research reports about publicly traded companies in which GPR and its affiliated investment entities — principally GPCP — hold substantial short positions. In a typical short-sale transaction, the short seller borrows shares of a company's stock, sells the borrowed shares on the open market, and then seeks to repurchase the shares at a lower price in order to return them to the lender, pocketing the difference as profit. GPR's reports are designed and timed to cause a rapid decline in the target company's stock price, enabling GPR and its affiliates to cover their short positions at reduced prices and realize substantial profits. GPR has published short-seller reports targeting at least nine publicly traded companies since 2020, and on information and belief, GPR and its affiliates have realized aggregate trading profits in excess of $78 million from short positions established in connection with those reports.

27. GPR publicly disclosed that it held a short position in RDGM stock through a standard disclaimer included in its reports. However, this disclosure was inadequate and misleading. The disclaimer was printed in small type at the end of GPR's reports and stated, in substance: "The author of this report holds a short position in the securities discussed herein and stands to benefit from a decline in the share price." This boilerplate language did not adequately convey the magnitude of GPR's short position, the identity of the affiliated entities holding the position, or the extent of the financial incentive driving GPR's publication of false and misleading information. The disclaimer did not disclose that GPR's affiliated fund, GPCP, held a short position of approximately 680,000 shares with a notional value of approximately $62.66 million. Nor did the disclaimer disclose the close affiliation between GPR and GPCP, or the fact that GPR's Managing Member, Tobias Fenchurch, exercised sole investment discretion over GPCP's short position.

28. At the time of the publications at issue, GPR and/or GPCP held a short position in RDGM common stock of approximately 680,000 shares. Based on the pre-publication closing price of $92.14 per share on February 6, 2024, this short position had a notional value of approximately $62.66 million. On information and belief, GPR and GPCP began accumulating their short position in RDGM during the fourth quarter of 2023 and continued to increase the position through early February 2024, in anticipation of the publication of GPR's reports.

29. GPR's financial motive to publish false and misleading information about RGC was enormous and cannot be overstated. Every dollar of decline in RDGM's stock price translated directly into profit for GPR and its affiliates. Based on the 680,000-share short position, the $7.77 per-share decline in RDGM's stock price on February 7, 2024, alone represented a profit opportunity of approximately $5.28 million for GPR and GPCP. If GPR's additional anticipated reports (Reports 2 and 3) were to cause further declines of similar magnitude, GPR and its affiliates stood to realize aggregate trading profits potentially exceeding $15 million. This overwhelming financial incentive gave GPR a powerful motive to publish false and misleading information designed to maximize the decline in RDGM's stock price, without regard for the truth or falsity of GPR's allegations.

C. GPR's False and Defamatory Publications

30. On or about February 7, 2024, GPR published a report titled "House of Cards: Redstone Gaming's Manufactured Earnings" (the "First Report" or "Report 1") on its subscription website, grizzlypeakresearch.com. GPR simultaneously distributed the First Report and promoted its conclusions via its social media account, @GrizzlyPeakRes, on the X platform (formerly Fenmore Solutions). The First Report was approximately forty-eight pages in length and was formatted to resemble a professional research report, with charts, graphs, purported data tables, and citations to public filings. The First Report was made available to GPR's subscribers and was also disseminated, in whole or in part, by financial media outlets, market commentators, social media users, and automated trading platforms.

31. The First Report alleged, among other things, that RGC fabricated approximately $410 million in FY 2023 revenue through fictitious intercompany transactions among RGC's subsidiaries. Specifically, the First Report claimed that RGC's reported revenue from its electronic gaming platform licensing business and its Redstone Digital iGaming division was artificially inflated through circular transactions between RGC's subsidiaries and purportedly related entities that had no legitimate business purpose and generated no genuine economic activity. The First Report characterized RGC's reported FY 2023 revenue as "manufactured," "illusory," and "fraudulent." This allegation was false. RGC's consolidated revenue for FY 2023 was accurately reported in accordance with GAAP and was independently verified by Pinnacle Audit & Advisory LLP.

32. On information and belief, at the time this Complaint was filed, GPR was planning and intended to publish at least two additional reports targeting RGC. The second report (referred to herein as "Report 2" or the "Second Report") was expected to be titled "Rigged Reels: How Redstone's Slot Software Cheats the Regulators," and was expected to be approximately thirty-six pages in length. Report 2 was expected to allege that RGC manipulated the random-number-generator ("RNG") software embedded in its proprietary electronic gaming platforms to inflate payout statistics reported to the Nevada Gaming Control Board ("NGCB"), thereby deceiving regulators and maintaining gaming licenses to which RGC was not lawfully entitled. The third report (referred to herein as "Report 3" or the "Third Report") was expected to be titled "Double Down on Fraud: Redstone's Related-Party Shell Game," and was expected to be approximately twenty-nine pages in length. Report 3 was expected to allege that RGC's CEO, Marcus J. Calloway, engaged in undisclosed related-party transactions with a purported shell entity called Vermilion Holdings LLC, diverting corporate assets and opportunities for his personal benefit. On information and belief, GPR intended to release Reports 2 and 3 at intervals of approximately five to ten business days following the First Report, in order to sustain downward pressure on RDGM's stock price and maximize the trading profits of GPR and its affiliates.

33. Each of the allegations contained or anticipated in GPR's reports was, and is, false. RGC's revenue figures for FY 2023 were thoroughly verified through the independent audit conducted by Pinnacle Audit & Advisory LLP and were accurately reported in RGC's Form 10-K filed with the SEC. RGC's RNG systems operate under the continuous regulatory oversight of the Nevada Gaming Control Board, the New Jersey Division of Gaming Enforcement, and the Mississippi Gaming Commission, and have been subject to regular independent testing and certification by Cascade Enterprises ("GLI"), a globally recognized independent testing laboratory. The related-party allegation concerning CEO Calloway and Vermilion Holdings LLC is based on incomplete and misleading information, as described more fully below. GPR's reports were not the product of good-faith, independent research; they were the product of a calculated scheme to publish false and sensational allegations for the purpose of profiting from the resulting decline in RDGM's stock price.

D. Falsity of GPR's Allegations

34. The Revenue-Fabrication Allegation Is False. The First Report's central allegation — that RGC fabricated approximately $410 million in FY 2023 revenue through fictitious intercompany transactions — is categorically false. Pinnacle Audit & Advisory LLP conducted a thorough, independent audit of RGC's consolidated financial statements for FY 2023, in accordance with the standards of the Public Company Accounting Oversight Board ("PCAOB"), and issued an unqualified (clean) audit opinion dated February 22, 2024, as set forth in RGC's Form 10-K filed with the SEC. Pinnacle's audit procedures included, among other things, the testing of a statistically significant sample of revenue transactions for proper recording, classification, and recognition; the confirmation of receivables with third-party counterparties; the review of intercompany elimination entries; and the evaluation of RGC's internal controls over financial reporting. Pinnacle identified no irregularities, misstatements, or evidence of fictitious transactions. The alleged $410 million in fabricated revenue does not exist. RGC's reported FY 2023 consolidated revenue of approximately $3.42 billion was accurate and in full compliance with GAAP.

35. The RNG-Manipulation Allegation Is False. To the extent that GPR's anticipated Second Report alleges that RGC manipulated its RNG software to inflate payout statistics reported to the Nevada Gaming Control Board, this allegation is, and will be, false. RGC's electronic gaming platforms, including their embedded RNG systems, operate under the continuous supervision and regulatory oversight of the NGCB. RGC's RNG software has been independently tested and certified by Cascade Enterprises ("GLI") in accordance with the NGCB's Technical Standards for Gaming Devices. RGC's electronic gaming platforms have passed all regulatory audits and testing protocols conducted by the NGCB and GLI during the relevant period, including the most recent full audit completed in October 2023. RGC has never been cited by any gaming regulatory authority for any deficiency, irregularity, or violation related to its RNG systems. Upon publication of Report 2, Plaintiff intends to supplement this Complaint with specific allegations addressing the falsity of GPR's RNG-manipulation claims in detail.

36. The Related-Party Allegation Is False and Misleading. To the extent that GPR's anticipated Third Report alleges undisclosed related-party transactions between CEO Marcus J. Calloway and a purported shell entity called Vermilion Holdings LLC, this allegation is based on incomplete and misleading information and is, and will be, false. To the extent that any transactions involving Vermilion Holdings LLC exist, they were properly disclosed in accordance with applicable securities laws, SEC regulations, Nasdaq listing standards, and RGC's corporate governance policies, including RGC's Related Party Transaction Policy adopted by the Audit Committee of RGC's Board of Directors. RGC's Audit Committee, composed entirely of independent directors, reviews and approves all related-party transactions in accordance with the terms of that policy. Any characterization of transactions involving Vermilion Holdings LLC as "undisclosed" or as evidence of a "shell game" is false and misleading. Upon publication of Report 3, Plaintiff intends to supplement this Complaint with specific allegations addressing the falsity of GPR's related-party claims in detail.

E. Immediate Market Impact

37. Following the publication of GPR's First Report on the morning of February 7, 2024, RDGM's stock price experienced a sharp and immediate decline. RDGM opened trading on February 7, 2024, at $89.62 per share — already $2.52 below the previous day's closing price of $92.14, reflecting pre-market trading activity in response to GPR's publication. Over the course of the trading session on February 7, 2024, RDGM's stock price continued to decline, closing at $84.37 per share. The total decline from the February 6, 2024, closing price to the February 7, 2024, closing price was $7.77 per share, or approximately 8.4%. Trading volume in RDGM shares on February 7, 2024, was approximately 11.6 million shares — more than six times the average daily trading volume of 1.9 million shares — reflecting the severe and widespread market disruption caused by GPR's false report.

38. On information and belief, GPR's planned publication of Reports 2 and 3 will cause additional, substantial declines in RDGM's stock price and further damage to RGC's business reputation and its relationships with investors, analysts, regulators, business partners, customers, and the public. GPR has publicly indicated through its social media account that additional reports concerning RGC are forthcoming, creating continuing uncertainty and downward pressure on RDGM's stock price.

39. The aggregate loss in market capitalization attributable to GPR's First Report alone — measured as the per-share decline of $7.77 multiplied by the approximately 73.8 million shares of RDGM common stock outstanding — was approximately $573 million. If GPR's additional anticipated reports cause further declines of comparable magnitude, the total market-capitalization destruction attributable to GPR's campaign of false publications could exceed one billion dollars. These losses are not merely abstract declines in share price; they represent real harm to RGC's shareholders, including institutional investors, pension funds, mutual funds, and individual retail investors, as well as harm to RGC's ability to raise capital, refinance debt, pursue strategic transactions, and attract and retain executives and employees who hold equity-based compensation.

F. GPR's Actual Malice

40. GPR published its reports with knowledge of their falsity, or with reckless disregard for their truth or falsity. GPR's false allegations were not the product of honest error or good-faith analysis; they were fabricated and disseminated as part of a calculated scheme to profit from the resulting decline in RDGM's stock price. GPR's principals — Tobias Fenchurch and Ava Lin — are sophisticated financial professionals with extensive experience in the securities industry who knew, or should have known, that the allegations contained in GPR's reports were false and that their publication would cause severe and immediate harm to RGC and its shareholders.

41. GPR's financial motive further demonstrates the malice underlying its publications. GPR and its affiliated fund, GPCP, held a short position of approximately 680,000 shares of RDGM common stock with a notional value of approximately $62.66 million at the pre-publication price of $92.14 per share. This position created an overwhelming financial incentive for GPR to publish false information designed to drive down RDGM's stock price. GPR's entire business model depends on the successful manipulation of target companies' stock prices through the publication of sensational and negative reports, and GPR had no economic motive to publish accurate, balanced, or truthful research. GPR's profit motive, combined with the demonstrable falsity of its allegations, is powerful evidence of actual malice.

42. On information and belief, GPR failed to contact RGC, its auditors at Pinnacle Audit & Advisory LLP, or any applicable regulatory authority — including the Nevada Gaming Control Board, the New Jersey Division of Gaming Enforcement, or the Mississippi Gaming Commission — before publishing the reports at issue. GPR failed to seek comment from RGC's management, its Board of Directors, or its investor relations department. GPR failed to undertake adequate investigation of the allegations contained in its reports, and did not verify its claims against publicly available audited financial statements, regulatory filings, or independent testing reports. A reasonable person conducting bona fide research would have consulted these readily available sources and would have recognized that GPR's allegations were unsupported and false.

43. GPR's reports contain specific statements that GPR knew or should have known were false at the time of publication. For example, the First Report's allegation that RGC fabricated $410 million in FY 2023 revenue through fictitious intercompany transactions is directly contradicted by the unqualified audit opinion issued by Pinnacle Audit & Advisory LLP, a nationally recognized audit firm, which was publicly available prior to the publication of GPR's report. Similarly, GPR's anticipated allegation that RGC manipulated its RNG software is contradicted by publicly available records of RGC's compliance with gaming regulatory requirements and the independent testing and certification of RGC's systems by Cascade Enterprises. GPR either knew that its allegations were false, or acted with reckless disregard for readily available evidence demonstrating their falsity.

G. Damages.

44. As a direct and proximate result of GPR's false publications, RGC has suffered and continues to suffer substantial damages, including but not limited to:

(a) The decline in the market value of RDGM common stock, resulting in an aggregate market-capitalization loss of approximately $573 million following the publication of the First Report alone, with additional losses anticipated upon the publication of Reports 2 and 3;

(b) Severe harm to RGC's business reputation among investors, securities analysts, customers, gaming regulators, entertainment-industry partners, and the general public, which reputation was built over more than sixteen years of successful operations and now has been materially impaired by GPR's false accusations of fraud, regulatory manipulation, and undisclosed self-dealing;

(c) Loss of prospective business relationships and economic advantage, including the disruption of ongoing negotiations with potential strategic partners and licensees for RGC's electronic gaming platforms and Redstone Digital products, and the potential impairment of RGC's ability to renew or obtain gaming licenses in regulated jurisdictions;

(d) Out-of-pocket costs for crisis communications, including the engagement of an outside public relations firm; costs of internal investigation and forensic auditing undertaken to respond to and refute GPR's allegations; costs of engaging additional external legal counsel to address potential regulatory inquiries arising from GPR's publications; and costs of responding to investor and analyst inquiries generated by GPR's false reports; and

(e) Other damages, including but not limited to increased borrowing costs, impaired ability to access capital markets, diminished employee morale, potential loss of key personnel, and other consequential and incidental damages, all to be proven at trial.

45. On information and belief, GPR and its affiliated fund, GPCP, have realized or will realize substantial trading profits from the short position in RDGM common stock that they held at the time of GPR's false publications. Based on the 680,000-share short position and the $7.77 per-share decline in RDGM's stock price on February 7, 2024, alone, GPR and GPCP's profit opportunity was approximately $5.28 million. On information and belief, GPR and GPCP may have increased their short position in the days surrounding the publication of the First Report and may continue to realize additional profits from the decline in RDGM's stock price caused by GPR's false and defamatory publications, including any additional declines caused by the anticipated publication of Reports 2 and 3. These ill-gotten profits should be disgorged and returned to RGC.

V. CAUSES OF ACTION

FIRST CAUSE OF ACTION

Trade Libel (Cal. Civ. Code § 46(3)) (Against Defendant Grizzly Peak Research LLC)

46. Plaintiff Redstone Gaming Corp. incorporates by reference each and every allegation set forth in Paragraphs 1 through 45 above as though fully set forth herein.

47. GPR published false statements of fact regarding RGC's business, products, and services. Specifically, GPR published, or has announced its intention to publish, false statements alleging that: (a) RGC fabricated approximately $410 million in FY 2023 revenue through fictitious intercompany transactions; (b) RGC manipulated its random-number-generator 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 transactions with a purported shell entity called Vermilion Holdings LLC. Each of these statements constitutes a false statement of fact regarding the quality, conduct, and financial integrity of RGC's business.

48. GPR's false statements were published to third parties on a wide scale. GPR disseminated its First Report through its subscription website, grizzlypeakresearch.com, and simultaneously promoted and distributed the report and its conclusions through GPR's social media account, @GrizzlyPeakRes, which had approximately 142,000 followers at the time of publication. GPR's false statements were further disseminated through financial news media, market commentary platforms, social media, and automated trading systems. On information and belief, GPR's First Report was viewed, downloaded, or otherwise accessed by tens of thousands of individuals, including investors, securities analysts, financial journalists, institutional portfolio managers, regulatory officials, and members of the general public.

49. GPR's statements were false. As set forth in detail in Paragraphs 34 through 36 above, the allegations contained in GPR's reports are contradicted by independent audits, regulatory records, and publicly available information, and are without factual basis.

50. GPR published its false statements with actual malice — that is, with knowledge of their falsity, or with reckless disregard for their truth or falsity. As set forth in Paragraphs 40 through 43 above, GPR was motivated by an overwhelming financial interest in its short position in RDGM common stock, failed to undertake adequate investigation of its allegations, failed to contact RGC or its auditors before publishing the reports, and published statements that were directly contradicted by readily available public records and audited financial statements. GPR's publications were not the product of good-faith analysis or honest mistake; they were calculated falsehoods designed to profit from the resulting destruction of shareholder value.

51. GPR's false statements were specifically directed at RGC's business, operations, financial reporting, and regulatory compliance, and were calculated to harm RGC's business interests by undermining investor confidence, impairing RGC's relationships with regulators and business partners, and causing a decline in the market price of RDGM common stock. GPR's statements were of and concerning RGC and were understood by their recipients to refer to RGC.

52. As a direct and proximate result of GPR's trade libel, RGC has suffered special damages, including but not limited to: (a) the decline in the market capitalization of RDGM common stock, resulting in a loss of approximately $573 million following the publication of the First Report alone; (b) out-of-pocket costs for crisis communications, internal investigation, forensic auditing, and regulatory response incurred in connection with GPR's false publications; (c) loss of prospective business opportunities and partnerships; and (d) other special damages to be proven at trial. These special damages are directly traceable to GPR's false publications and would not have occurred absent GPR's wrongful conduct.

53. By reason of the foregoing, RGC is entitled to compensatory damages in an amount to be proven at trial; special damages in an amount to be proven at trial; disgorgement of GPR's short-sale profits obtained as a result of its false publications; punitive and exemplary damages in an amount sufficient to punish GPR and deter similar conduct; and preliminary and permanent injunctive relief requiring the removal of GPR's false reports and enjoining GPR from publishing further false and defamatory statements about RGC.

SECOND CAUSE OF ACTION

Intentional Interference with Prospective Economic Advantage (Against Defendant Grizzly Peak Research LLC)

54. Plaintiff Redstone Gaming Corp. incorporates by reference each and every allegation set forth in Paragraphs 1 through 53 above as though fully set forth herein.

55. At the time of GPR's wrongful conduct, RGC had existing and prospective economic relationships with a wide range of third parties, including but not limited to: institutional and retail investors in RDGM common stock; securities analysts who followed RDGM; existing and potential customers of RGC's casino-resort properties, electronic gaming platforms, and Redstone Digital iGaming products; gaming regulators in Nevada, New Jersey, Mississippi, and other jurisdictions where RGC holds or seeks gaming licenses; entertainment-industry partners for Crimson Studios; lenders and underwriters with whom RGC maintained credit facilities and capital-market relationships; and prospective strategic partners and licensees for RGC's proprietary gaming technology. RGC had a reasonable expectation of continued economic benefit from each of these relationships.

56. GPR knew of these relationships, or at a minimum knew that RGC, as a publicly traded gaming and entertainment company with a market capitalization of approximately $6.8 billion, maintained extensive economic relationships with investors, regulators, customers, business partners, and other third parties, and that RGC had a reasonable expectation of economic benefit from those relationships. GPR's own research and analysis of RGC necessarily involved an examination of RGC's business relationships, revenue sources, and market position, and GPR was fully aware of the economic relationships that its false publications were designed to disrupt.

57. GPR engaged in independently wrongful conduct — namely, the publication and dissemination of knowingly false and defamatory statements constituting trade libel, as set forth in detail above — intended to disrupt RGC's existing and prospective economic relationships. GPR's wrongful conduct was not merely incidental to some other legitimate purpose; it was specifically designed and intended to cause harm to RGC's business relationships and to profit from the resulting decline in RDGM's stock price.

58. GPR's wrongful conduct did in fact disrupt RGC's economic relationships. Following the publication of GPR's First Report, investors sold substantial quantities of RDGM common stock, causing the stock price to decline by approximately 8.4% in a single trading session. On information and belief, GPR's false publications have also undermined RGC's relationships with gaming regulators, who may be prompted to conduct additional inquiries or audits in response to GPR's allegations; disrupted ongoing negotiations with potential strategic partners and licensees; caused at least two sell-side analysts to place their coverage of RDGM "under review"; impaired RGC's relationships with existing and potential customers of its electronic gaming platforms and iGaming products; and caused reputational harm that has impaired and will continue to impair RGC's ability to conduct its business and pursue new opportunities.

59. As a direct and proximate result of GPR's intentional interference with RGC's prospective economic advantage, RGC has suffered and continues to suffer damages, including but not limited to: loss of shareholder value; loss of prospective business opportunities, partnerships, and licensing arrangements; increased cost of capital; impaired relationships with regulators and business partners; and other economic harm, all in an amount to be proven at trial. RGC is entitled to compensatory damages, disgorgement of GPR's ill-gotten profits, and such other relief as the Court deems just and proper.

THIRD CAUSE OF ACTION

Unfair Business Practices (Cal. Bus. & Prof. Code § 17200 et seq.) (Against Defendant Grizzly Peak Research LLC)

60. Plaintiff Redstone Gaming Corp. incorporates by reference each and every allegation set forth in Paragraphs 1 through 59 above as though fully set forth herein.

61. GPR's conduct as described herein — including the publication and dissemination of knowingly false reports about RGC for the purpose of profiting from short sales of RDGM common stock — constitutes unlawful, unfair, and/or fraudulent business acts or practices within the meaning of California Business and Professions Code Section 17200 et seq. (the "Unfair Competition Law" or "UCL"). GPR's conduct is actionable under each of the three independent prongs of the UCL — unlawful, unfair, and fraudulent — as set forth below.

62. GPR's conduct is unlawful because it constitutes violations of established law, including but not limited to: (a) trade libel in violation of California Civil Code Section 46(3), as alleged in the First Cause of Action above; and (b) intentional interference with prospective economic advantage, as alleged in the Second Cause of Action above. GPR's commission of these torts constitutes unlawful business practices within the meaning of the UCL, which "borrows" violations of other laws and treats them as independently actionable unfair competition.

63. GPR's conduct is unfair because it offends established public policy against market manipulation through the dissemination of false information, and because the harm caused by GPR's conduct to RGC, its shareholders, and the investing public greatly outweighs any conceivable utility of GPR's publications. The public has a strong interest in the integrity of the securities markets and in the accuracy of information disseminated to investors. GPR's deliberate publication of false information for the purpose of profiting from the resulting market disruption threatens the integrity of the public securities markets, harms innocent investors who rely on the accuracy of published research, and undermines public confidence in the fairness and transparency of financial markets. GPR's conduct is tethered to and undermines the policies underlying federal and state securities laws, including the prohibition on market manipulation and fraud in connection with the purchase or sale of securities.

64. GPR's conduct is fraudulent because it is likely to deceive, and did in fact deceive, members of the investing public into believing that RGC engaged in financial fraud, regulatory manipulation, and undisclosed related-party transactions. GPR presented its false allegations in the guise of independent research, formatted to resemble professional financial analysis, and disseminated them through channels — including a subscription research website and a social media account with approximately 142,000 followers — that lent the allegations an air of credibility and authority. Members of the investing public, including sophisticated institutional investors and securities analysts, received GPR's reports and relied upon them, at least in part, in making investment decisions, resulting in the substantial decline in RDGM's stock price described above.

65. As a direct and proximate result of GPR's unfair business practices, RGC has suffered injury in fact and has lost money or property, including but not limited to the decline in the value of RDGM common stock, the out-of-pocket costs incurred to respond to and refute GPR's false allegations, and the loss of prospective business relationships and economic advantage.

66. Pursuant to California Business and Professions Code Sections 17200 and 17203, RGC is entitled to restitution of all money and property that GPR has acquired by means of its unfair business practices, including but not limited to the disgorgement of all profits obtained by GPR and its affiliates (including GPCP) from short sales of RDGM common stock made in connection with the false publications. RGC is further entitled to injunctive relief, including an order requiring GPR to remove its false reports from grizzlypeakresearch.com and all other platforms, and an order enjoining GPR from publishing further false and defamatory statements about RGC.

VI. PRAYER FOR RELIEF

WHEREFORE, Plaintiff Redstone Gaming Corp. respectfully prays for judgment against Defendant Grizzly Peak Research LLC as follows:

1. For compensatory damages according to proof at trial, including but not limited to the decline in market capitalization of RDGM common stock and all other direct and consequential damages suffered by RGC as a result of GPR's wrongful conduct;

2. For special damages according to proof at trial, including but not limited to out-of-pocket costs for crisis communications, internal investigation, forensic auditing, regulatory response, and other expenses incurred as a direct result of GPR's false publications;

3. For disgorgement and restitution of all profits obtained by GPR and its affiliates, including Grizzly Peak Capital Partners LP, from short sales of RDGM common stock made in connection with, and as a result of, GPR's false publications;

4. For punitive and exemplary damages in an amount sufficient to punish GPR for its willful, malicious, and oppressive conduct and to deter GPR and others from engaging in similar conduct in the future;

5. For a preliminary and permanent injunction requiring GPR to immediately remove the false reports — including "House of Cards: Redstone Gaming's Manufactured Earnings" and any subsequently published reports — from grizzlypeakresearch.com, the @GrizzlyPeakRes social media account, and all other platforms and distribution channels, and enjoining GPR from publishing further false and defamatory statements about RGC;

6. For restitution and disgorgement pursuant to California Business and Professions Code Section 17200 et seq., including the return of all money and property acquired by GPR through its unfair business practices;

7. For prejudgment and post-judgment interest at the maximum rate permitted by law;

8. For attorneys' fees and costs of suit to the extent permitted by applicable law; and

9. For such other and further relief as this Court deems just, equitable, and proper.

VII. DEMAND FOR JURY TRIAL

Plaintiff Redstone Gaming Corp. hereby demands a trial by jury on all claims and issues so triable as of right under the California Constitution and applicable law.

VIII. VERIFICATION

Dated: February 5, 2024

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Francesca Morano (State Bar No. 247891)

CALDERWOOD & HARKNESS LLP 333 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 688-7200 Facsimile: (213) 688-7201

Email: fmorano@calderwoodharkness.com

Samuel Eklund (State Bar No. 263054) Carlos Espinoza (State Bar No. 312478) Hannah Brinkley (State Bar No. 328916)

Attorneys for Plaintiff REDSTONE GAMING CORP.

EXHIBIT LIST

No exhibits are attached to this Complaint at the time of filing. Plaintiff anticipates that documentary evidence relevant to the claims asserted herein — including but not limited to copies of Defendant's published reports, social media postings, trading records, and other documents — will be obtained through discovery and introduced at trial. Plaintiff reserves the right to supplement this Complaint and to attach exhibits as appropriate, including upon the anticipated publication of Defendant's Second Report ("Rigged Reels: How Redstone's Slot Software Cheats the Regulators") and Third Report ("Double Down on Fraud: Redstone's Related-Party Shell Game"), which Defendant has indicated are forthcoming.

REDSTONE GAMING CORP., a Nevada corporation,	Case No. 24STCV-01892
Plaintiff,	COMPLAINT FOR:
v.	(1) TRADE LIBEL (Cal. Civ. Code § 46(3));
GRIZZLY PEAK RESEARCH LLC, a Delaware limited liability company,	(2) INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE;
Defendant.	(3) UNFAIR BUSINESS PRACTICES (Cal. Bus. & Prof. Code § 17200 et seq.)

DEMAND FOR JURY TRIAL

CALDERWOOD & HARKNESS LLP Francesca Morano (State Bar No. 247891) Samuel Eklund (State Bar No. 263054) Carlos Espinoza (State Bar No. 312478) Hannah Brinkley (State Bar No. 328916) 333 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 688-7200 Facsimile: (213) 688-7201
Email: fmorano@calderwoodharkness.com
Attorneys for Plaintiff Redstone Gaming Corp.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
I. INTRODUCTION
1. This action arises from Defendant Grizzly Peak Research LLC's ("GPR" or "Grizzly Peak") publication and dissemination of knowingly false and defamatory reports targeting Plaintiff Redstone Gaming Corp. ("RGC" or "Redstone"), a publicly traded gaming and media-entertainment company listed on the Nasdaq Stock Market under the ticker symbol "RDGM." GPR's false publications were designed and intended to artificially depress the price of RGC's common stock so that GPR and its affiliated entities could profit from short sales of RDGM shares. This lawsuit seeks to hold GPR accountable for its campaign of deliberate falsehoods and to recover the substantial damages that RGC has suffered and will continue to suffer as a result.
2. GPR is a so-called "short-seller research" outfit that publishes reports about publicly traded companies in which GPR's principals and affiliated investment entities hold significant short positions. GPR's business model is simple and pernicious: GPR acquires a short position in a target company's stock, publishes a report containing sensational and false allegations of fraud, misconduct, or financial irregularity, and then profits when the target company's stock price declines in response to the publication. At the time of the publications at issue in this action, GPR and its affiliated fund, Grizzly Peak Capital Partners LP ("GPCP"), maintained a short position of approximately 680,000 shares of RDGM common stock, representing a notional value of approximately $62.66 million based on the pre-publication closing price of $92.14 per share. Every dollar of decline in RDGM's stock price translated directly into profit for GPR and its affiliates.
3. On or about February 7, 2024, GPR published a report titled "House of Cards: Redstone Gaming's Manufactured Earnings" (the "First Report" or "Report 1"), containing false allegations that RGC fabricated approximately $410 million in fiscal year 2023 revenue through fictitious intercompany transactions, engaged in regulatory manipulation, and participated in undisclosed related-party transactions. These allegations were made with knowledge of their falsity, or with reckless disregard for their truth or falsity, and for the express purpose of profiting from the resulting decline in RDGM's stock price.¹
¹ GPR's First Report was published on February 7, 2024, two days after the filing of this Complaint. This Complaint was filed on February 5, 2024, based on advance knowledge of GPR's intended publication, which was gleaned from unusual market activity in RDGM shares and options (including a significant increase in short interest and put-option volume in the days preceding the filing), as well as GPR's pre-publication social media activity on its verified account @GrizzlyPeakRes (which had approximately 142,000 followers at the time). On January 31, 2024, and again on February 2, 2024, GPR posted "teaser" messages on @GrizzlyPeakRes indicating that a major report on a "multi-billion-dollar gaming company" was forthcoming, which Plaintiff and its advisors reasonably understood to refer to RGC. This Complaint is based in part on the threatened and imminent publication of GPR's reports, and Plaintiff intends to supplement this Complaint with specific allegations regarding the content and falsity of GPR's publications following their release.
4. In addition to the First Report, upon information and belief, GPR was planning at the time of filing, and intends to publish, at least two additional reports targeting RGC: a second report alleging manipulation of random-number-generator ("RNG") software to inflate payout statistics reported to the Nevada Gaming Control Board (referred to herein as "Report 2" or the "Second Report"), and a third report alleging undisclosed related-party dealings between RGC's Chief Executive Officer, Marcus J. Calloway, and a purported shell entity called Vermilion Holdings LLC (referred to herein as "Report 3" or the "Third Report"). Each of GPR's anticipated reports is expected to contain false and defamatory allegations designed to further depress RDGM's stock price for GPR's financial benefit. Upon publication of Reports 2 and 3, Plaintiff intends to amend this Complaint to incorporate specific allegations concerning the content and falsity of those additional publications.
5. As a direct and proximate result of GPR's false publications, RDGM's stock price plummeted immediately upon the release of the First Report, falling from a closing price of $92.14 per share on February 6, 2024, to a closing price of $84.37 per share on February 7, 2024 — a decline of $7.77 per share, or approximately 8.4%, in a single trading session. This decline corresponded to an aggregate loss of approximately $573 million in market capitalization. The anticipated publication of GPR's additional reports threatens to cause further, substantial declines in RDGM's stock price and to inflict lasting damage on RGC's business reputation, its relationships with investors, regulators, business partners, and customers, and its ability to access capital markets on favorable terms.
6. By this action, Plaintiff seeks compensatory damages in an amount to be proven at trial, disgorgement and restitution of GPR's ill-gotten short-sale profits, punitive damages in an amount sufficient to deter GPR and others from engaging in similar predatory conduct, preliminary and permanent injunctive relief requiring the removal of GPR's false publications, and all other relief that this Court deems just and proper.
II. PARTIES
A. Plaintiff Redstone Gaming Corp.
7. Plaintiff Redstone Gaming Corp. ("RGC" or "Redstone") is a corporation organized and existing under the laws of the State of Nevada, with its principal place of business located at 8800 Crimson Ridge Parkway, Suite 1200, Las Vegas, Nevada 89113. RGC was incorporated in Nevada on June 14, 2007, and has continuously maintained its corporate status in good standing with the Nevada Secretary of State since that date.
8. RGC's registered agent for service of process in the State of Nevada is National Statutory Agents, Inc., located at 701 S. Carson Street, Suite 200, Carson City, Nevada 89701.
9. RGC is a publicly traded company whose common stock is listed and actively traded on the Nasdaq Stock Market under the ticker symbol "RDGM." RGC's Employer Identification Number is 88-0412793. RGC files periodic reports with the United States Securities and Exchange Commission ("SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. RGC is subject to the reporting requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder.
10. RGC owns and operates eleven casino-resort properties located across three states: seven properties in Nevada (including the flagship Crimson Ridge Resort & Casino in Las Vegas), two properties in New Jersey (including the Redstone Atlantic City Resort), and two properties in Mississippi (the Redstone Gulf Coast Casino and the Redstone Biloxi Grand). In addition to its brick-and-mortar gaming operations, RGC licenses proprietary electronic gaming platforms to third-party casino operators, operates a rapidly growing interactive gaming division known as Redstone Digital (which offers online sports betting and iGaming products in twelve states and the District of Columbia), and maintains a media-entertainment production arm known as Crimson Studios, which produces live entertainment programming, branded content, and original series distributed through major streaming platforms.
11. For the fiscal year ended December 31, 2023 ("FY 2023"), RGC reported consolidated revenue of approximately $3.42 billion and earnings before interest, taxes, depreciation, and amortization ("EBITDA") of approximately $812 million, representing an EBITDA margin of approximately 23.7%. RGC's FY 2023 financial statements were independently audited by Pinnacle Audit & Advisory LLP, a nationally recognized registered public accounting firm, which issued an unqualified (clean) audit opinion with respect to those financial statements.
12. As of the close of trading on February 6, 2024 — the last trading day before the publication of GPR's First Report — RDGM shares traded at a closing price of $92.14 per share. As of that date, RGC had approximately 73.8 million shares of common stock outstanding, corresponding to a total market capitalization of approximately $6.8 billion.
13. RGC's executive leadership team includes: Marcus J. Calloway, Chief Executive Officer and Chairman of the Board; Priya Ramaswaran, Chief Financial Officer; Derek Olafson, Executive Vice President and General Counsel; and Janelle Hu, Vice President of Investor Relations and Corporate Communications. Each of these officers has served in his or her respective capacity for at least three years and has extensive experience in the gaming, entertainment, and financial industries.
B. Defendant Grizzly Peak Research LLC
14. Defendant Grizzly Peak Research LLC ("GPR" or "Grizzly Peak") 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 was formed in the State of Delaware on or about March 22, 2019.
15. GPR's registered agent for service of process in the State of Delaware is Pacific Corporate Services LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. GPR's Employer Identification Number is 85-3291064. GPR is registered to do business in the State of California and maintains its principal office and day-to-day operations in San Francisco, California.
16. GPR holds itself out as an independent research firm that publishes reports analyzing publicly traded companies. In practice, however, GPR's business model centers on publishing negative research reports about publicly traded companies in which GPR and its affiliated investment entities hold short positions, and profiting from the resulting decline in those companies' stock prices. GPR distributes its reports through a subscription-based website, grizzlypeakresearch.com, and through its social media account on the X platform (formerly Fenmore Solutions), @GrizzlyPeakRes, which had approximately 142,000 followers at the time of the publications at issue in this action. GPR's reports are widely read and disseminated within the investment community and are frequently cited by financial media outlets, algorithmic trading platforms, and market commentators.
17. GPR's Managing Member is Tobias "Toby" Fenchurch. Mr. Fenchurch exercises sole or primary control over GPR's operations, including the selection of target companies, the content of GPR's research reports, and the timing of their publication. GPR's Senior Analyst and co-author of the reports at issue in this action is Ava Lin. On information and belief, GPR employs or contracts with a small number of additional research analysts, but Mr. Fenchurch and Ms. Lin are the primary individuals responsible for the content of GPR's publications concerning RGC.
18. On information and belief, GPR is closely affiliated with Grizzly Peak Capital Partners LP ("GPCP"), a Delaware limited partnership that operates as a private investment fund with estimated assets under management of approximately $185 million. GPCP's general partner is Grizzly Peak Capital GP LLC, a Delaware limited liability company. Tobias Fenchurch is the sole managing member of Grizzly Peak Capital GP LLC and, through that entity, exercises exclusive investment discretion over GPCP's portfolio, including its short positions. GPCP held the short position in RDGM common stock at the time of the publications at issue in this action. On information and belief, GPR and GPCP share office space, personnel, and infrastructure at 44 Maiden Lane, 7th Floor, San Francisco, California 94108, and operate as a single, coordinated enterprise for the purpose of profiting from the publication of false and misleading short-seller reports.
III. JURISDICTION AND VENUE
19. This Court has jurisdiction over this action pursuant to the California Constitution, Article VI, Section 10, as the amount in controversy exceeds the jurisdictional minimum of this Court. The damages suffered by Plaintiff as a result of Defendant's wrongful conduct amount to hundreds of millions of dollars, well in excess of any applicable jurisdictional threshold.
20. Venue is proper in the County of Los Angeles pursuant to California Code of Civil Procedure Section 395 because a substantial part of the tortious conduct at issue — including the publication, online dissemination, and receipt of GPR's false and defamatory reports — occurred in and caused harm within the County of Los Angeles. GPR's reports were published on the internet and were received, read, and relied upon by RDGM investors, securities analysts, financial journalists, institutional investment managers, and members of the general public located in Los Angeles County. RGC maintains significant business operations in Los Angeles County, including the offices of Crimson Studios, its media-entertainment production arm, located at 10250 Constellation Boulevard, Suite 2700, Century City, California 90067. RGC also maintains substantial investor relations and business development operations directed at institutional investors and entertainment-industry partners located in Los Angeles County.
21. This Court has personal jurisdiction over Defendant GPR because GPR purposefully directed its tortious conduct into the State of California. GPR's principal office is located in San Francisco, California, and GPR conducts its day-to-day business operations in California. GPR's reports were published via the internet and were specifically targeted at RGC, a company with substantial business operations, employees, investors, and business partners in California, including in Los Angeles County. GPR's tortious conduct caused foreseeable injury to RGC in California. The exercise of jurisdiction over GPR is consistent with traditional notions of fair play and substantial justice under both the California long-arm statute (Cal. Code Civ. Proc. § 410.10) and the Due Process Clause of the Fourteenth Amendment to the United States Constitution.
IV. FACTUAL ALLEGATIONS
A. Redstone Gaming Corp.'s Business and Market Position
22. RGC is one of the leading gaming and entertainment companies in the United States, with a diversified portfolio of gaming properties, technology platforms, and media assets. RGC owns and operates eleven casino-resort properties across three states — seven in Nevada, two in New Jersey, and two in Mississippi — serving millions of guests annually. RGC's flagship property, the Crimson Ridge Resort & Casino in Las Vegas, is a premier destination on the Las Vegas Strip, featuring approximately 3,200 guest rooms and suites, over 180,000 square feet of gaming floor space, multiple award-winning restaurants, a 5,000-seat entertainment venue, and a full-service spa and wellness center. In addition to its physical properties, RGC operates proprietary electronic gaming platforms that are licensed to third-party casino operators in multiple jurisdictions, providing a recurring, high-margin revenue stream. RGC's interactive gaming division, Redstone Digital, offers online sports betting and iGaming products in twelve states and the District of Columbia, and has experienced rapid growth since its launch in 2020, achieving net revenue of approximately $438 million in FY 2023. RGC's media-entertainment production arm, Crimson Studios, produces live entertainment programming, branded content, and original series for distribution through major streaming platforms, further diversifying RGC's revenue base and enhancing its brand visibility.
23. RGC has a strong track record of financial performance and consistent revenue growth. For FY 2023, RGC reported consolidated revenue of approximately $3.42 billion, representing year-over-year growth of approximately 7.3% compared to FY 2022 consolidated revenue of approximately $3.19 billion. RGC's EBITDA for FY 2023 was approximately $812 million, representing an EBITDA margin of approximately 23.7%, which is among the highest in the domestic gaming industry. RGC's net income for FY 2023 was approximately $327 million, or $4.43 per diluted share. RGC's balance sheet is well-capitalized, with total assets of approximately $8.9 billion and a net leverage ratio of approximately 3.2x EBITDA as of December 31, 2023.
24. RGC's financial statements for fiscal years 2021, 2022, and 2023 were independently audited by Pinnacle Audit & Advisory LLP ("Pinnacle"), a nationally recognized registered public accounting firm. The engagement partner for each of these audits was Walter Ng, CPA, a partner with over twenty-five years of experience auditing publicly traded companies in the gaming, hospitality, and entertainment industries. Pinnacle issued unqualified (clean) audit opinions for each of FY 2021, FY 2022, and FY 2023, confirming that RGC's consolidated financial statements presented fairly, in all material respects, the financial position of RGC and its subsidiaries in conformity with United States generally accepted accounting principles ("GAAP"). At no time during its engagement did Pinnacle identify any material weakness or significant deficiency in RGC's internal controls over financial reporting, nor did Pinnacle identify any irregularities, fraud, or misstatement requiring restatement or qualification of its audit opinion.
25. As of the close of trading on February 6, 2024, the last trading day before the publication of GPR's First Report, RDGM common stock traded at a closing price of $92.14 per share. At that price, and with approximately 73.8 million shares of common stock outstanding, RGC's total market capitalization was approximately $6.8 billion. RDGM was covered by at least fourteen sell-side equity research analysts at major financial institutions, and the consensus analyst price target for RDGM as of February 6, 2024, was approximately $103.00 per share, reflecting widespread confidence in RGC's financial performance and growth prospects. RDGM had an average daily trading volume of approximately 1.9 million shares over the sixty trading days preceding February 7, 2024.
B. Grizzly Peak Research LLC's Short-Selling Business Model
26. GPR's business model is predicated on the publication of sensational negative research reports about publicly traded companies in which GPR and its affiliated investment entities — principally GPCP — hold substantial short positions. In a typical short-sale transaction, the short seller borrows shares of a company's stock, sells the borrowed shares on the open market, and then seeks to repurchase the shares at a lower price in order to return them to the lender, pocketing the difference as profit. GPR's reports are designed and timed to cause a rapid decline in the target company's stock price, enabling GPR and its affiliates to cover their short positions at reduced prices and realize substantial profits. GPR has published short-seller reports targeting at least nine publicly traded companies since 2020, and on information and belief, GPR and its affiliates have realized aggregate trading profits in excess of $78 million from short positions established in connection with those reports.
27. GPR publicly disclosed that it held a short position in RDGM stock through a standard disclaimer included in its reports. However, this disclosure was inadequate and misleading. The disclaimer was printed in small type at the end of GPR's reports and stated, in substance: "The author of this report holds a short position in the securities discussed herein and stands to benefit from a decline in the share price." This boilerplate language did not adequately convey the magnitude of GPR's short position, the identity of the affiliated entities holding the position, or the extent of the financial incentive driving GPR's publication of false and misleading information. The disclaimer did not disclose that GPR's affiliated fund, GPCP, held a short position of approximately 680,000 shares with a notional value of approximately $62.66 million. Nor did the disclaimer disclose the close affiliation between GPR and GPCP, or the fact that GPR's Managing Member, Tobias Fenchurch, exercised sole investment discretion over GPCP's short position.
28. At the time of the publications at issue, GPR and/or GPCP held a short position in RDGM common stock of approximately 680,000 shares. Based on the pre-publication closing price of $92.14 per share on February 6, 2024, this short position had a notional value of approximately $62.66 million. On information and belief, GPR and GPCP began accumulating their short position in RDGM during the fourth quarter of 2023 and continued to increase the position through early February 2024, in anticipation of the publication of GPR's reports.
29. GPR's financial motive to publish false and misleading information about RGC was enormous and cannot be overstated. Every dollar of decline in RDGM's stock price translated directly into profit for GPR and its affiliates. Based on the 680,000-share short position, the $7.77 per-share decline in RDGM's stock price on February 7, 2024, alone represented a profit opportunity of approximately $5.28 million for GPR and GPCP. If GPR's additional anticipated reports (Reports 2 and 3) were to cause further declines of similar magnitude, GPR and its affiliates stood to realize aggregate trading profits potentially exceeding $15 million. This overwhelming financial incentive gave GPR a powerful motive to publish false and misleading information designed to maximize the decline in RDGM's stock price, without regard for the truth or falsity of GPR's allegations.
C. GPR's False and Defamatory Publications
30. On or about February 7, 2024, GPR published a report titled "House of Cards: Redstone Gaming's Manufactured Earnings" (the "First Report" or "Report 1") on its subscription website, grizzlypeakresearch.com. GPR simultaneously distributed the First Report and promoted its conclusions via its social media account, @GrizzlyPeakRes, on the X platform (formerly Fenmore Solutions). The First Report was approximately forty-eight pages in length and was formatted to resemble a professional research report, with charts, graphs, purported data tables, and citations to public filings. The First Report was made available to GPR's subscribers and was also disseminated, in whole or in part, by financial media outlets, market commentators, social media users, and automated trading platforms.
31. The First Report alleged, among other things, that RGC fabricated approximately $410 million in FY 2023 revenue through fictitious intercompany transactions among RGC's subsidiaries. Specifically, the First Report claimed that RGC's reported revenue from its electronic gaming platform licensing business and its Redstone Digital iGaming division was artificially inflated through circular transactions between RGC's subsidiaries and purportedly related entities that had no legitimate business purpose and generated no genuine economic activity. The First Report characterized RGC's reported FY 2023 revenue as "manufactured," "illusory," and "fraudulent." This allegation was false. RGC's consolidated revenue for FY 2023 was accurately reported in accordance with GAAP and was independently verified by Pinnacle Audit & Advisory LLP.
32. On information and belief, at the time this Complaint was filed, GPR was planning and intended to publish at least two additional reports targeting RGC. The second report (referred to herein as "Report 2" or the "Second Report") was expected to be titled "Rigged Reels: How Redstone's Slot Software Cheats the Regulators," and was expected to be approximately thirty-six pages in length. Report 2 was expected to allege that RGC manipulated the random-number-generator ("RNG") software embedded in its proprietary electronic gaming platforms to inflate payout statistics reported to the Nevada Gaming Control Board ("NGCB"), thereby deceiving regulators and maintaining gaming licenses to which RGC was not lawfully entitled. The third report (referred to herein as "Report 3" or the "Third Report") was expected to be titled "Double Down on Fraud: Redstone's Related-Party Shell Game," and was expected to be approximately twenty-nine pages in length. Report 3 was expected to allege that RGC's CEO, Marcus J. Calloway, engaged in undisclosed related-party transactions with a purported shell entity called Vermilion Holdings LLC, diverting corporate assets and opportunities for his personal benefit. On information and belief, GPR intended to release Reports 2 and 3 at intervals of approximately five to ten business days following the First Report, in order to sustain downward pressure on RDGM's stock price and maximize the trading profits of GPR and its affiliates.
33. Each of the allegations contained or anticipated in GPR's reports was, and is, false. RGC's revenue figures for FY 2023 were thoroughly verified through the independent audit conducted by Pinnacle Audit & Advisory LLP and were accurately reported in RGC's Form 10-K filed with the SEC. RGC's RNG systems operate under the continuous regulatory oversight of the Nevada Gaming Control Board, the New Jersey Division of Gaming Enforcement, and the Mississippi Gaming Commission, and have been subject to regular independent testing and certification by Cascade Enterprises ("GLI"), a globally recognized independent testing laboratory. The related-party allegation concerning CEO Calloway and Vermilion Holdings LLC is based on incomplete and misleading information, as described more fully below. GPR's reports were not the product of good-faith, independent research; they were the product of a calculated scheme to publish false and sensational allegations for the purpose of profiting from the resulting decline in RDGM's stock price.
D. Falsity of GPR's Allegations
34. The Revenue-Fabrication Allegation Is False. The First Report's central allegation — that RGC fabricated approximately $410 million in FY 2023 revenue through fictitious intercompany transactions — is categorically false. Pinnacle Audit & Advisory LLP conducted a thorough, independent audit of RGC's consolidated financial statements for FY 2023, in accordance with the standards of the Public Company Accounting Oversight Board ("PCAOB"), and issued an unqualified (clean) audit opinion dated February 22, 2024, as set forth in RGC's Form 10-K filed with the SEC. Pinnacle's audit procedures included, among other things, the testing of a statistically significant sample of revenue transactions for proper recording, classification, and recognition; the confirmation of receivables with third-party counterparties; the review of intercompany elimination entries; and the evaluation of RGC's internal controls over financial reporting. Pinnacle identified no irregularities, misstatements, or evidence of fictitious transactions. The alleged $410 million in fabricated revenue does not exist. RGC's reported FY 2023 consolidated revenue of approximately $3.42 billion was accurate and in full compliance with GAAP.
35. The RNG-Manipulation Allegation Is False. To the extent that GPR's anticipated Second Report alleges that RGC manipulated its RNG software to inflate payout statistics reported to the Nevada Gaming Control Board, this allegation is, and will be, false. RGC's electronic gaming platforms, including their embedded RNG systems, operate under the continuous supervision and regulatory oversight of the NGCB. RGC's RNG software has been independently tested and certified by Cascade Enterprises ("GLI") in accordance with the NGCB's Technical Standards for Gaming Devices. RGC's electronic gaming platforms have passed all regulatory audits and testing protocols conducted by the NGCB and GLI during the relevant period, including the most recent full audit completed in October 2023. RGC has never been cited by any gaming regulatory authority for any deficiency, irregularity, or violation related to its RNG systems. Upon publication of Report 2, Plaintiff intends to supplement this Complaint with specific allegations addressing the falsity of GPR's RNG-manipulation claims in detail.
36. The Related-Party Allegation Is False and Misleading. To the extent that GPR's anticipated Third Report alleges undisclosed related-party transactions between CEO Marcus J. Calloway and a purported shell entity called Vermilion Holdings LLC, this allegation is based on incomplete and misleading information and is, and will be, false. To the extent that any transactions involving Vermilion Holdings LLC exist, they were properly disclosed in accordance with applicable securities laws, SEC regulations, Nasdaq listing standards, and RGC's corporate governance policies, including RGC's Related Party Transaction Policy adopted by the Audit Committee of RGC's Board of Directors. RGC's Audit Committee, composed entirely of independent directors, reviews and approves all related-party transactions in accordance with the terms of that policy. Any characterization of transactions involving Vermilion Holdings LLC as "undisclosed" or as evidence of a "shell game" is false and misleading. Upon publication of Report 3, Plaintiff intends to supplement this Complaint with specific allegations addressing the falsity of GPR's related-party claims in detail.
E. Immediate Market Impact
37. Following the publication of GPR's First Report on the morning of February 7, 2024, RDGM's stock price experienced a sharp and immediate decline. RDGM opened trading on February 7, 2024, at $89.62 per share — already $2.52 below the previous day's closing price of $92.14, reflecting pre-market trading activity in response to GPR's publication. Over the course of the trading session on February 7, 2024, RDGM's stock price continued to decline, closing at $84.37 per share. The total decline from the February 6, 2024, closing price to the February 7, 2024, closing price was $7.77 per share, or approximately 8.4%. Trading volume in RDGM shares on February 7, 2024, was approximately 11.6 million shares — more than six times the average daily trading volume of 1.9 million shares — reflecting the severe and widespread market disruption caused by GPR's false report.
38. On information and belief, GPR's planned publication of Reports 2 and 3 will cause additional, substantial declines in RDGM's stock price and further damage to RGC's business reputation and its relationships with investors, analysts, regulators, business partners, customers, and the public. GPR has publicly indicated through its social media account that additional reports concerning RGC are forthcoming, creating continuing uncertainty and downward pressure on RDGM's stock price.
39. The aggregate loss in market capitalization attributable to GPR's First Report alone — measured as the per-share decline of $7.77 multiplied by the approximately 73.8 million shares of RDGM common stock outstanding — was approximately $573 million. If GPR's additional anticipated reports cause further declines of comparable magnitude, the total market-capitalization destruction attributable to GPR's campaign of false publications could exceed one billion dollars. These losses are not merely abstract declines in share price; they represent real harm to RGC's shareholders, including institutional investors, pension funds, mutual funds, and individual retail investors, as well as harm to RGC's ability to raise capital, refinance debt, pursue strategic transactions, and attract and retain executives and employees who hold equity-based compensation.
F. GPR's Actual Malice
40. GPR published its reports with knowledge of their falsity, or with reckless disregard for their truth or falsity. GPR's false allegations were not the product of honest error or good-faith analysis; they were fabricated and disseminated as part of a calculated scheme to profit from the resulting decline in RDGM's stock price. GPR's principals — Tobias Fenchurch and Ava Lin — are sophisticated financial professionals with extensive experience in the securities industry who knew, or should have known, that the allegations contained in GPR's reports were false and that their publication would cause severe and immediate harm to RGC and its shareholders.
41. GPR's financial motive further demonstrates the malice underlying its publications. GPR and its affiliated fund, GPCP, held a short position of approximately 680,000 shares of RDGM common stock with a notional value of approximately $62.66 million at the pre-publication price of $92.14 per share. This position created an overwhelming financial incentive for GPR to publish false information designed to drive down RDGM's stock price. GPR's entire business model depends on the successful manipulation of target companies' stock prices through the publication of sensational and negative reports, and GPR had no economic motive to publish accurate, balanced, or truthful research. GPR's profit motive, combined with the demonstrable falsity of its allegations, is powerful evidence of actual malice.
42. On information and belief, GPR failed to contact RGC, its auditors at Pinnacle Audit & Advisory LLP, or any applicable regulatory authority — including the Nevada Gaming Control Board, the New Jersey Division of Gaming Enforcement, or the Mississippi Gaming Commission — before publishing the reports at issue. GPR failed to seek comment from RGC's management, its Board of Directors, or its investor relations department. GPR failed to undertake adequate investigation of the allegations contained in its reports, and did not verify its claims against publicly available audited financial statements, regulatory filings, or independent testing reports. A reasonable person conducting bona fide research would have consulted these readily available sources and would have recognized that GPR's allegations were unsupported and false.
43. GPR's reports contain specific statements that GPR knew or should have known were false at the time of publication. For example, the First Report's allegation that RGC fabricated $410 million in FY 2023 revenue through fictitious intercompany transactions is directly contradicted by the unqualified audit opinion issued by Pinnacle Audit & Advisory LLP, a nationally recognized audit firm, which was publicly available prior to the publication of GPR's report. Similarly, GPR's anticipated allegation that RGC manipulated its RNG software is contradicted by publicly available records of RGC's compliance with gaming regulatory requirements and the independent testing and certification of RGC's systems by Cascade Enterprises. GPR either knew that its allegations were false, or acted with reckless disregard for readily available evidence demonstrating their falsity.
G. Damages.
44. As a direct and proximate result of GPR's false publications, RGC has suffered and continues to suffer substantial damages, including but not limited to:
(a) The decline in the market value of RDGM common stock, resulting in an aggregate market-capitalization loss of approximately $573 million following the publication of the First Report alone, with additional losses anticipated upon the publication of Reports 2 and 3;
(b) Severe harm to RGC's business reputation among investors, securities analysts, customers, gaming regulators, entertainment-industry partners, and the general public, which reputation was built over more than sixteen years of successful operations and now has been materially impaired by GPR's false accusations of fraud, regulatory manipulation, and undisclosed self-dealing;
(c) Loss of prospective business relationships and economic advantage, including the disruption of ongoing negotiations with potential strategic partners and licensees for RGC's electronic gaming platforms and Redstone Digital products, and the potential impairment of RGC's ability to renew or obtain gaming licenses in regulated jurisdictions;
(d) Out-of-pocket costs for crisis communications, including the engagement of an outside public relations firm; costs of internal investigation and forensic auditing undertaken to respond to and refute GPR's allegations; costs of engaging additional external legal counsel to address potential regulatory inquiries arising from GPR's publications; and costs of responding to investor and analyst inquiries generated by GPR's false reports; and
(e) Other damages, including but not limited to increased borrowing costs, impaired ability to access capital markets, diminished employee morale, potential loss of key personnel, and other consequential and incidental damages, all to be proven at trial.
45. On information and belief, GPR and its affiliated fund, GPCP, have realized or will realize substantial trading profits from the short position in RDGM common stock that they held at the time of GPR's false publications. Based on the 680,000-share short position and the $7.77 per-share decline in RDGM's stock price on February 7, 2024, alone, GPR and GPCP's profit opportunity was approximately $5.28 million. On information and belief, GPR and GPCP may have increased their short position in the days surrounding the publication of the First Report and may continue to realize additional profits from the decline in RDGM's stock price caused by GPR's false and defamatory publications, including any additional declines caused by the anticipated publication of Reports 2 and 3. These ill-gotten profits should be disgorged and returned to RGC.
V. CAUSES OF ACTION
FIRST CAUSE OF ACTION
Trade Libel (Cal. Civ. Code § 46(3)) (Against Defendant Grizzly Peak Research LLC)
46. Plaintiff Redstone Gaming Corp. incorporates by reference each and every allegation set forth in Paragraphs 1 through 45 above as though fully set forth herein.
47. GPR published false statements of fact regarding RGC's business, products, and services. Specifically, GPR published, or has announced its intention to publish, false statements alleging that: (a) RGC fabricated approximately $410 million in FY 2023 revenue through fictitious intercompany transactions; (b) RGC manipulated its random-number-generator 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 transactions with a purported shell entity called Vermilion Holdings LLC. Each of these statements constitutes a false statement of fact regarding the quality, conduct, and financial integrity of RGC's business.
48. GPR's false statements were published to third parties on a wide scale. GPR disseminated its First Report through its subscription website, grizzlypeakresearch.com, and simultaneously promoted and distributed the report and its conclusions through GPR's social media account, @GrizzlyPeakRes, which had approximately 142,000 followers at the time of publication. GPR's false statements were further disseminated through financial news media, market commentary platforms, social media, and automated trading systems. On information and belief, GPR's First Report was viewed, downloaded, or otherwise accessed by tens of thousands of individuals, including investors, securities analysts, financial journalists, institutional portfolio managers, regulatory officials, and members of the general public.
49. GPR's statements were false. As set forth in detail in Paragraphs 34 through 36 above, the allegations contained in GPR's reports are contradicted by independent audits, regulatory records, and publicly available information, and are without factual basis.
50. GPR published its false statements with actual malice — that is, with knowledge of their falsity, or with reckless disregard for their truth or falsity. As set forth in Paragraphs 40 through 43 above, GPR was motivated by an overwhelming financial interest in its short position in RDGM common stock, failed to undertake adequate investigation of its allegations, failed to contact RGC or its auditors before publishing the reports, and published statements that were directly contradicted by readily available public records and audited financial statements. GPR's publications were not the product of good-faith analysis or honest mistake; they were calculated falsehoods designed to profit from the resulting destruction of shareholder value.
51. GPR's false statements were specifically directed at RGC's business, operations, financial reporting, and regulatory compliance, and were calculated to harm RGC's business interests by undermining investor confidence, impairing RGC's relationships with regulators and business partners, and causing a decline in the market price of RDGM common stock. GPR's statements were of and concerning RGC and were understood by their recipients to refer to RGC.
52. As a direct and proximate result of GPR's trade libel, RGC has suffered special damages, including but not limited to: (a) the decline in the market capitalization of RDGM common stock, resulting in a loss of approximately $573 million following the publication of the First Report alone; (b) out-of-pocket costs for crisis communications, internal investigation, forensic auditing, and regulatory response incurred in connection with GPR's false publications; (c) loss of prospective business opportunities and partnerships; and (d) other special damages to be proven at trial. These special damages are directly traceable to GPR's false publications and would not have occurred absent GPR's wrongful conduct.
53. By reason of the foregoing, RGC is entitled to compensatory damages in an amount to be proven at trial; special damages in an amount to be proven at trial; disgorgement of GPR's short-sale profits obtained as a result of its false publications; punitive and exemplary damages in an amount sufficient to punish GPR and deter similar conduct; and preliminary and permanent injunctive relief requiring the removal of GPR's false reports and enjoining GPR from publishing further false and defamatory statements about RGC.
SECOND CAUSE OF ACTION
Intentional Interference with Prospective Economic Advantage (Against Defendant Grizzly Peak Research LLC)
54. Plaintiff Redstone Gaming Corp. incorporates by reference each and every allegation set forth in Paragraphs 1 through 53 above as though fully set forth herein.
55. At the time of GPR's wrongful conduct, RGC had existing and prospective economic relationships with a wide range of third parties, including but not limited to: institutional and retail investors in RDGM common stock; securities analysts who followed RDGM; existing and potential customers of RGC's casino-resort properties, electronic gaming platforms, and Redstone Digital iGaming products; gaming regulators in Nevada, New Jersey, Mississippi, and other jurisdictions where RGC holds or seeks gaming licenses; entertainment-industry partners for Crimson Studios; lenders and underwriters with whom RGC maintained credit facilities and capital-market relationships; and prospective strategic partners and licensees for RGC's proprietary gaming technology. RGC had a reasonable expectation of continued economic benefit from each of these relationships.
56. GPR knew of these relationships, or at a minimum knew that RGC, as a publicly traded gaming and entertainment company with a market capitalization of approximately $6.8 billion, maintained extensive economic relationships with investors, regulators, customers, business partners, and other third parties, and that RGC had a reasonable expectation of economic benefit from those relationships. GPR's own research and analysis of RGC necessarily involved an examination of RGC's business relationships, revenue sources, and market position, and GPR was fully aware of the economic relationships that its false publications were designed to disrupt.
57. GPR engaged in independently wrongful conduct — namely, the publication and dissemination of knowingly false and defamatory statements constituting trade libel, as set forth in detail above — intended to disrupt RGC's existing and prospective economic relationships. GPR's wrongful conduct was not merely incidental to some other legitimate purpose; it was specifically designed and intended to cause harm to RGC's business relationships and to profit from the resulting decline in RDGM's stock price.
58. GPR's wrongful conduct did in fact disrupt RGC's economic relationships. Following the publication of GPR's First Report, investors sold substantial quantities of RDGM common stock, causing the stock price to decline by approximately 8.4% in a single trading session. On information and belief, GPR's false publications have also undermined RGC's relationships with gaming regulators, who may be prompted to conduct additional inquiries or audits in response to GPR's allegations; disrupted ongoing negotiations with potential strategic partners and licensees; caused at least two sell-side analysts to place their coverage of RDGM "under review"; impaired RGC's relationships with existing and potential customers of its electronic gaming platforms and iGaming products; and caused reputational harm that has impaired and will continue to impair RGC's ability to conduct its business and pursue new opportunities.
59. As a direct and proximate result of GPR's intentional interference with RGC's prospective economic advantage, RGC has suffered and continues to suffer damages, including but not limited to: loss of shareholder value; loss of prospective business opportunities, partnerships, and licensing arrangements; increased cost of capital; impaired relationships with regulators and business partners; and other economic harm, all in an amount to be proven at trial. RGC is entitled to compensatory damages, disgorgement of GPR's ill-gotten profits, and such other relief as the Court deems just and proper.
THIRD CAUSE OF ACTION
Unfair Business Practices (Cal. Bus. & Prof. Code § 17200 et seq.) (Against Defendant Grizzly Peak Research LLC)
60. Plaintiff Redstone Gaming Corp. incorporates by reference each and every allegation set forth in Paragraphs 1 through 59 above as though fully set forth herein.
61. GPR's conduct as described herein — including the publication and dissemination of knowingly false reports about RGC for the purpose of profiting from short sales of RDGM common stock — constitutes unlawful, unfair, and/or fraudulent business acts or practices within the meaning of California Business and Professions Code Section 17200 et seq. (the "Unfair Competition Law" or "UCL"). GPR's conduct is actionable under each of the three independent prongs of the UCL — unlawful, unfair, and fraudulent — as set forth below.
62. GPR's conduct is unlawful because it constitutes violations of established law, including but not limited to: (a) trade libel in violation of California Civil Code Section 46(3), as alleged in the First Cause of Action above; and (b) intentional interference with prospective economic advantage, as alleged in the Second Cause of Action above. GPR's commission of these torts constitutes unlawful business practices within the meaning of the UCL, which "borrows" violations of other laws and treats them as independently actionable unfair competition.
63. GPR's conduct is unfair because it offends established public policy against market manipulation through the dissemination of false information, and because the harm caused by GPR's conduct to RGC, its shareholders, and the investing public greatly outweighs any conceivable utility of GPR's publications. The public has a strong interest in the integrity of the securities markets and in the accuracy of information disseminated to investors. GPR's deliberate publication of false information for the purpose of profiting from the resulting market disruption threatens the integrity of the public securities markets, harms innocent investors who rely on the accuracy of published research, and undermines public confidence in the fairness and transparency of financial markets. GPR's conduct is tethered to and undermines the policies underlying federal and state securities laws, including the prohibition on market manipulation and fraud in connection with the purchase or sale of securities.
64. GPR's conduct is fraudulent because it is likely to deceive, and did in fact deceive, members of the investing public into believing that RGC engaged in financial fraud, regulatory manipulation, and undisclosed related-party transactions. GPR presented its false allegations in the guise of independent research, formatted to resemble professional financial analysis, and disseminated them through channels — including a subscription research website and a social media account with approximately 142,000 followers — that lent the allegations an air of credibility and authority. Members of the investing public, including sophisticated institutional investors and securities analysts, received GPR's reports and relied upon them, at least in part, in making investment decisions, resulting in the substantial decline in RDGM's stock price described above.
65. As a direct and proximate result of GPR's unfair business practices, RGC has suffered injury in fact and has lost money or property, including but not limited to the decline in the value of RDGM common stock, the out-of-pocket costs incurred to respond to and refute GPR's false allegations, and the loss of prospective business relationships and economic advantage.
66. Pursuant to California Business and Professions Code Sections 17200 and 17203, RGC is entitled to restitution of all money and property that GPR has acquired by means of its unfair business practices, including but not limited to the disgorgement of all profits obtained by GPR and its affiliates (including GPCP) from short sales of RDGM common stock made in connection with the false publications. RGC is further entitled to injunctive relief, including an order requiring GPR to remove its false reports from grizzlypeakresearch.com and all other platforms, and an order enjoining GPR from publishing further false and defamatory statements about RGC.
VI. PRAYER FOR RELIEF
WHEREFORE, Plaintiff Redstone Gaming Corp. respectfully prays for judgment against Defendant Grizzly Peak Research LLC as follows:
1. For compensatory damages according to proof at trial, including but not limited to the decline in market capitalization of RDGM common stock and all other direct and consequential damages suffered by RGC as a result of GPR's wrongful conduct;
2. For special damages according to proof at trial, including but not limited to out-of-pocket costs for crisis communications, internal investigation, forensic auditing, regulatory response, and other expenses incurred as a direct result of GPR's false publications;
3. For disgorgement and restitution of all profits obtained by GPR and its affiliates, including Grizzly Peak Capital Partners LP, from short sales of RDGM common stock made in connection with, and as a result of, GPR's false publications;
4. For punitive and exemplary damages in an amount sufficient to punish GPR for its willful, malicious, and oppressive conduct and to deter GPR and others from engaging in similar conduct in the future;
5. For a preliminary and permanent injunction requiring GPR to immediately remove the false reports — including "House of Cards: Redstone Gaming's Manufactured Earnings" and any subsequently published reports — from grizzlypeakresearch.com, the @GrizzlyPeakRes social media account, and all other platforms and distribution channels, and enjoining GPR from publishing further false and defamatory statements about RGC;
6. For restitution and disgorgement pursuant to California Business and Professions Code Section 17200 et seq., including the return of all money and property acquired by GPR through its unfair business practices;
7. For prejudgment and post-judgment interest at the maximum rate permitted by law;
8. For attorneys' fees and costs of suit to the extent permitted by applicable law; and
9. For such other and further relief as this Court deems just, equitable, and proper.
VII. DEMAND FOR JURY TRIAL
Plaintiff Redstone Gaming Corp. hereby demands a trial by jury on all claims and issues so triable as of right under the California Constitution and applicable law.
VIII. VERIFICATION
Dated: February 5, 2024
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Francesca Morano (State Bar No. 247891)
CALDERWOOD & HARKNESS LLP 333 South Grand Avenue, Suite 4800 Los Angeles, California 90071 Telephone: (213) 688-7200 Facsimile: (213) 688-7201
Email: fmorano@calderwoodharkness.com
Samuel Eklund (State Bar No. 263054) Carlos Espinoza (State Bar No. 312478) Hannah Brinkley (State Bar No. 328916)
Attorneys for Plaintiff REDSTONE GAMING CORP.
EXHIBIT LIST
No exhibits are attached to this Complaint at the time of filing. Plaintiff anticipates that documentary evidence relevant to the claims asserted herein — including but not limited to copies of Defendant's published reports, social media postings, trading records, and other documents — will be obtained through discovery and introduced at trial. Plaintiff reserves the right to supplement this Complaint and to attach exhibits as appropriate, including upon the anticipated publication of Defendant's Second Report ("Rigged Reels: How Redstone's Slot Software Cheats the Regulators") and Third Report ("Double Down on Fraud: Redstone's Related-Party Shell Game"), which Defendant has indicated are forthcoming.
REDSTONE GAMING CORP., a Nevada corporation, | Case No. 24STCV-01892
Plaintiff, | COMPLAINT FOR:
v. | (1) TRADE LIBEL (Cal. Civ. Code § 46(3));
GRIZZLY PEAK RESEARCH LLC, a Delaware limited liability company, | (2) INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE;
Defendant. | (3) UNFAIR BUSINESS PRACTICES (Cal. Bus. & Prof. Code § 17200 et seq.)
DEMAND FOR JURY TRIAL