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Report: Ex-Factor 5 Employees Sue Company For Fraud

Report: Ex-Factor 5 Employees Sue Company For Fraud

June 17, 2009 | By Kris Graft

June 17, 2009 | By Kris Graft
More: Console/PC

Former employees for San Rafael, Calif.-based developer Factor 5 are suing the company for allegedly fraudulently conveying intellectual property to another company prior to declaring bankruptcy, in order to avoid paying employees and debtors.

Factor 5 closed its doors on May 13, and according to a report in the Marin Independent Journal, soon after had 69 claims for unpaid wages totaling over $900,000.

The plaintiffs' lawyer James Smith said, "We allege in the suit that Factor 5 and its three founders fraudulently transferred assets, including source code and other intellectual property to Blue Harvest, which is now known as White Harvest."

He added, "We believe and have alleged in the complaint that Factor 5 and White Harvest are essentially the same company, being run by the same people, being represented by the same sets of lawyers, with all the same management and ownership and control, performing all the same work that they were doing at Factor 5, just now with a new name and a new address."

Some instances of fraudulent conveyance occur when a party transfers assets to another entity, such as a newly-founded company, and retains ownership of those properties, albeit under a different name, in order to put them out of reach of creditors.

Factor 5 estimated to have between $1 million to $10 million in debt. The primary creditor to the studio is LucasArts, which Factor 5 owes over $4 million from a 2003 loan, according to bankruptcy filings. In the past, the studio had worked closely with LucasArts on games set in the Star Wars universe, including the Nintendo GameCube games Star Wars Rogue Squadron II: Rogue Leader and Star Wars Rogue Squadron III: Rebel Strike.

Factor 5 most recently released the dragon-based flying game Lair, which underperformed commercially. But according to the report, Factor 5 wasn't done with Star Wars. Smith claimed that Factor 5 founders transferred work on a Wii version of Star Wars: Rogue Squadron to Blue Harvest.

Smith also accused Factor 5 head Julian Eggebrecht of attempting to shield his own assets by transferring his share of a house to the woman with whom he shared the title for a fraction of the house's value.

Deborah Schwartz, a San Francisco lawyer representing the defendants, declined comment to the Marin Independent Journal, which first broke this story.

Gamasutra is unable to reach out to the alleged post-Factor 5 company, since no public information on its contact details appears to exist, but will update as more information becomes available.

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