Funko To Pay $2.1 Million in Legal Fees To Settle Lawsuit Over Alleged Misleading Statements By Ex-CEO & Others
Collectible toy maker Funko has agreed to pay over $2.1 million in legal fees to resolve lawsuit alleging former CEO Brian Mariotti and other executives breached fiduciary duties by making “false and misleading statements to Funko stockholders and the public.”
Funko executives and board members had been fighting multiple lawsuits that were since consolidated, alleging they withheld information about the company’s lower-than-expected sales, growth, operational difficulties and inventory management, including a risk that Funko may need to write off slow-moving inventory, according to a Funko press release.
According to the plaintiffs, the “defendants were unjustly enriched, and that certain of the individual defendants sold their personally held shares of Funko stock at allegedly artificially inflated prices while purportedly in possession of material nonpublic information.”
In agreeing to the settlement, Mariotti and the other defendants “dispute the allegations in the litigation and enter into the Stipulation and Settlement without in any way acknowledging any fault, liability, or wrongdoing of any kind.”
Mariotti had returned to lead the company in late December 2022, just months after eBay, Disney CEO Bob Iger and Founder of Klutch Sports Group/Head of Sports at United Talent Agency Rich Paul formed a consortium with The Chernin Group to take a 25% stake in the company at the then high stock price of $21.00 per share.
Liz Morton
As part of the investment, Funko and eBay entered into a commercial agreement under which eBay would become the preferred secondary marketplace for Funko and the companies would partner on exclusive product releases - a promise that Funko only really started to fulfill in late 2023 when it added a feature that allows collectors to list items on eBay directly from the Funko app.
That investment so far hasn't worked out too well for eBay as Funko has seen a massive drop in stock price since that time, currently at $9.62 per share after vacillating between ~$6.00 - $10.00 over the last year.
eBay CEO Jamie Iannone not only bet company money on Funko, but also placed part of his vertical focus strategy for collectibles on the hope that the Funko fad would continue to hold strong - a lesson that should have been learned from Beanie Babies and Fidget Spinners of yore and maybe should have been applied to eBay's now failed acquisition of NFT marketplace KnownOrigin as well.
Liz Morton
Under growing pressure from investors, Brian Mariotti abruptly stepped down from his CEO position at Funko again in July 2023, originally saying he was going to take a leave of absence and then return to continue to serve on the board before completely resigning in September 2023.
A hearing scheduled for November 15 will determine whether the notice and terms of the settlement meet federal regulations and due process requirements and are “fair, reasonable, and adequate” to Funko stockholders.
