Licensing Scandal Hits Jakks Stock
The stock of Jakks Pacific Inc. fell sharply Friday amid investors’ growing concern that a licensing scandal could further envelop the Malibu toy company.
After plunging more than 20% in morning trading, Jakks’ stock rebounded but still finished with a 6.3% loss, down $1.44 at $21.44 a share on Nasdaq as more than 4 million shares changed hands.
The slide came after a former licensing chief at World Wrestling Entertainment Inc., James K. Bell, pleaded guilty Thursday to accepting kickbacks in exchange for handing out WWE licenses.
Jakks and other companies make licensed toys, T-shirts, games and other products based on the glitzy stars of Stamford, Conn.-based WWE, formerly the World Wrestling Federation.
The names of the licensees involved in Bell’s scheme weren’t disclosed; WWE has filed a separate civil suit against Jakks, the toy maker’s top executives, Bell and others. It alleged that Jakks paid $100,000 in bribes -- split by Bell and an outside WWE licensing agent, Stanley Shenker -- to secure a lucrative WWE video game license in 1998.
The license, which extends until 2009, is jointly owned by Jakks and THQ Inc., a video game maker based in Calabasas Hills. The venture produces such games as WWE’s “Smackdown!” series. Jakks has a separate license to make WWE action figures.
Jakks has denied the allegations in WWE’s suit, which was filed in October. But Bell’s guilty plea casts a cloud over the toy company, said Sean McGowan, an analyst with Harris Nesbitt Corp.
“Somebody bribed him [Bell], and if that trail leads back to Jakks, investors would be upset,” McGowan said. “The fact that he admits he was bribed doesn’t mean Jakks did the bribing, but it moves the case further along the road in that direction.”
U.S. Atty. Kevin O'Connor in Connecticut, along with the FBI and the Internal Revenue Service, continue to investigate the case, O'Connor spokesman Tom Carson said. He declined to comment further.
Jakks executives couldn’t be reached for comment Friday, a company spokeswoman said.
Jerry McDevitt, the lawyer handling WWE’s lawsuit against Jakks, said, “We hope that Mr. Bell now fully cooperates and reveals what he knows.”
Bell’s lawyer, John Williams, said he couldn’t discuss which licenses were involved in Bell’s guilty plea. But he said Bell continued to answer questions from WWE’s lawyers and “anybody who has a right to question him will receive a truthful answer.”
Bell pleaded guilty to one count of mail fraud in U.S. District Court in Bridgeport, Conn. He admitted to a scheme in which he arranged for Shenker’s firm, SS & Associates Inc., to receive commissions on WWE licenses to which it wasn’t entitled. Bell would then get kickbacks from SS & Associates.
Bell, who is scheduled to be sentenced April 29, faces up to five years in prison and has agreed to pay $1.9 million in restitution. Shenker, of New Canaan, Conn., hasn’t been charged and hasn’t commented on the case.
WWE’s stock rose 26 cents to $12.45 a share on the New York Stock Exchange. THQ’s stock fell 42 cents to $26.73 on Nasdaq. THQ has said that it was “not directly accused” of doing anything wrong in the WWE suit and that it wasn’t aware of any wrongdoing by others.
Jakks was started in 1995 by Chief Executive Jack Friedman and President Stephen Berman, both former THQ executives. In 2003, Jakks’ profit from the WWE video game venture was $7.4 million, or 30% of its pretax profit for the year.