Overview
An investor in GameStop Corp. filed a lawsuit on Monday seeking to prevent shareholders from voting on a proposed $35 billion compensation package for Chief Executive Officer Ryan Cohen until the company provides what the complaint describes as proper disclosures. The filing, lodged in Delaware's Chancery Court, contends that the company has not been transparent about changes to the voting process tied to the pay proposal. The filing was reported on Tuesday by Bloomberg.
Allegations in the complaint
The proposed class action challenges the board's decision to grant Cohen stock option awards that, if certain ambitious targets are met, could yield a multibillion-dollar payout. Shareholders are scheduled to vote on the compensation package on July 7.
The suit says the board repeatedly altered procedures governing the vote in the run-up to issuing a proxy statement that the plaintiff describes as misleading and designed to depress turnout among public investors. Specific changes cited in the complaint include fluctuations over whether Cohen can cast votes with his roughly 9.3% stake and how abstentions would be treated in the vote tally.
The complaint quotes the plaintiff's lawyers as saying, "GameStop's audacious attempts to reduce the power of its disinterested shareholders - in contrast to its prior public statements and in disregard of its Certificate of Incorporation - must stop." The filing adds, "Cohen may want $35 billion. That does not allow him and his board to disenfranchise stockholders and violate Delaware law along the way."
Terms of the proposed package and governance concerns
Under the proposal, Cohen would receive $35 billion if the company reaches a $100 billion market capitalization and attains $10 billion in EBITDA. The complaint asserts that the board first issued a press release indicating the vote would exclude Cohen's shares and be decided by "unaffiliated stockholders," and then later released a proxy statement that mischaracterized those prior statements.
The plaintiff argues these moves could let Cohen and other insiders determine the outcome with the backing of only about 15% support from public investors, effectively allowing a small portion of holders to carry the measure.
Background on Cohen's involvement
Cohen initially invested in GameStop in 2020, joined the board in 2021 and became chairman later that year. He assumed the CEO role in 2023 and is now the company's largest individual shareholder.
On the compensation plan, Cohen told CNBC that, "I obviously want to build something much larger, but I don't benefit unless shareholders benefit."
This article presents the allegations and claims made in the filed complaint and the cited comments. It does not resolve the underlying legal questions, which will be determined through the court process.