- GameStop said it refused to pay the fees because doing so was not in the best interest of GME shareholders.
- The case is still awaiting trial.
What You Should Know About the BCG Lawsuit at GameStop
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Why was BCG sued GameStop?
GameStop (GME) has filed a lawsuit against Boston Consulting Group (BCG), a business consulting company. The firm claims that the organization owes about $30 million in unpaid fees in 2019. BCG had hired GameStop in 2019 to assist the retailer in executing a business turnaround strategy.
According to BCG, the company assigned tens of thousands of hours of work to its GameStop account. In the filing, BCG said GameStop was "hemorrhaging customers" and on "life support," as it reported net operating losses of about $800 million in 2018.
The consulting company also stated that its fees were not tied to actual, actual, real-world results. Instead, the agreed-on fee structure was based on projected increases in GameStop's profits.
Although GameStop has received an increase in funding, it is unlikely that it was due to BCG's efforts. Retail investors gave the company a massive boost in 2021, by boosting its share price to new highs, and allowing GameStop to raise $1.13 billion in capital.
Daniel Kaufman, GameStop's former general counsel and chief transformation officer, left the company, and the company prospered. However, that relationship deteriorated when CFO Jim Bell took over the turnaround project. According to BCG, GameStop has refused to pay the required charges since.
A Motion to Transfer the Case to Texas
GameStop filed a formal request that the court dismiss the case after BCG filed a lawsuit. BCG requested an extension to respond to the motion-to-dismiss motion, but ultimately did not do so.
GameStop is attempting to relocate the case from Delaware to Texas, where it has its headquarters, via a motion to transfer venue. The court's decision on the transfer motion will likely come within the next month.
What Can This Do To GameStop Stock?
GameStop is capable of paying $30 million, even if it doesn't pay the $30 million bill. After all, the company spent $1.3 billion on cash and cash equivalents in 2021.
However, considering that GameStop's stock is heavily influenced by retail investors, speculation about the lawsuit might have an impact on GME.
GameStop said in a statement that it does not believe it is in the best interests of its shareholders to pay millions of dollars to BCG, especially given the little impact BCG's services have had on GameStop's business.
"We are determined to fight this injustice and are pleased that GameStop no longer employs BCG for any services," the company told The Financial Times.
Ryan Cohen, GameStop's largest shareholder and board chairman, also made clear his position regarding the lawsuit and responded with some memes:
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not affect editorial content.)