As today’s Diamond hearing rolls out, looking back at charges that “the fix was in”

Today a key hearing in the Diamond Bankruptcy was held in which Judge David E. Rice heard arguments in various key matters, including the most contentious: the sale of Diamond’s consignment inventory to pay off their bank debts. 

One key ruling has already been made: the sale of Diamond UK to a new entity, Diamond Distributors UK, Ltd, consisting of members of the current management team, has been approved. We’ll have more analysis of that move later. 

On the consignment matter, a motion has been filed which appears to ask for more time to look at publisher arguments. 

Evidentiary Hearing Held: re: 638 Motion to Sell Free and Clear of Liens and Notice of Motion IS GRANTED. Order to be prepared by Movant.(related document(s) 638 Motion to Sell Free and Clear of Liens and Notice of Motion, 716 Objection) (Scott, Cherita)

According to Brett Schenker and his legal analysts at Graphic Policy, “This is a good thing for the publishers. The judge wants to hear their evidence/what they have to say and not rejecting their case outright.”

From what we’ve heard, Judge Rice, who specializes in bankruptcies, has been consistent in wanting to examine the evidence and not rush through any of the proceedings. So that tracks. 

While we await the outcome, it is perhaps time to look back at some of the key outstanding elements of this entire affair….and the unanswered questions that persist. 

In advance of today’s hearing, a massive 345 page filing including the contracts between the Consignment Group, which consists of  Aspen, Black Mask Studios, DSTLRY, Dynamic Forces, Inc. a/k/a Dynamite Entertainment, Heavy Metal, Magnetic Press, Massive Publishing Oni-Lion Forge, Panini UK Ltd., Punk Bot Comic Books, LLC a/k/a Alien Books, Penn State University a/k/a Graphic Mundi, Titan,  Vault Comics, and Dark Horse. Dark Horse just joined the Consignment groups, making it 14 rather than 13 publishers. 

I have not had time to go through all 345 pages of contracts, but there’s the history of the comics industry for you. 

Another interesting filing was a motion to quash the subpoena of Ad Populum owner Joel Weinshanker to testify at the hearing was filed. There appear to be fairly reasonable ground to dismiss the subpoena, and also today I learned that “quash” is a legal term:  

The Committee’s abject failure to provide any advance notice of its intent to call Sparkle Pop as a witness at the hearing on the Motion to Sell Consigned Inventory—all the while having been in communication with counsel for Sparkle Pop—cannot be countenanced and this Court should quash the subpoena.

Interestingly, it wasn’t the first subpoena for Weinshanker, but he has yet to testify in this case, although he did undergo a deposition in the Sparkle Pop vs Alliance interference case. 

To be sure, the Committee very well could, and in fact did, serve a discovery subpoena on Sparkle Pop and have taken the discovery it seeks in advance of the hearing on the Motion to Sell Consigned Inventory.

It does, however, follow the pattern of complete and utter silence from Ad Populum/Sparkle Pop on any substantive matters regarding their governance of “New” Diamond comics, aside from the aforementioned lawsuit. Ad Populum is very good at not saying anything. However they are also at the center of the most common conspiracy theory regarding the case. 

THE ALLEGED CONSPIRACY TO FIX THE OUTOME OF DIAMOND’S BANKRUPTCY

As I’ve noted before, I have asked many times of people at all levels of this case – publishers, Diamond employees, lawyers, invested observers – why Robert Gorin, the bankruptcy trustee, was so set on selling to Universal and Ad Populum. No one knows. 

There must have been a reason. Court records show that Diamond’s lawyer claimed that the Alliance bid was shaky and had been withdrawn and other reasons…including the adverse reaction to Alliance head Bruce Ogilvie’s podcast interview. But money talks and $81 million (Alliance final bid) is more than the Uni/AdPop $61 million bid. $12 million is nothing to sneeze at and in today’s world a little spouting off on a podcast is a badge of honor not a call to have your bid cancelled. 

As early as April 6, when a hearing over the initial switcheroo from Alliance to Universal/Sparkle Pop was held, Alliance’s lawyers were already alleging that there was some kind of secret agreement between Getzler Henrich, Raymond James, Diamond and Ad Populum: “I think we will show Your Honor that — if you’ve heard the expression the fix was in, the fix was definitely in on this auction. And the result is unfair. It’s unfair to the Creditors of this estate, and it’s certainly unfair to all of the parties that showed up to bid in good faith and who were met with a cold shoulder from virtually every professional on the Debtor’s side.”

The transcript of this hearing is now public and this entire section is interesting to read:

MR TEELE: Our bid at the auction has improved by virtue of these off-the-record post-auction bidding from $70,880,000 net, to $81 million. There’s no indication on the record or otherwise that the backup bidder’s offer has improved that. In addition to that, and there’s no information since the auction available to anybody, including the Court, but at the auction—and it’s on the record—the two backup bidders’ bids were contingent: if one bidder didn’t close, then the other bidder had the right but not the obligation to purchase that non-closing bidder’s assets.

But there could be a result where one of the two bidders fails to close. And having seen no APA—there wasn’t one at the auction, there wasn’t one after the auction, Mr. Minuti just confirmed for the Court that they don’t have one today, that they’re ready to show anybody—that risk is significant to this bankruptcy estate. And my client is sitting here ready, willing, and able to pay total consideration of greater than $81 million to close this thing on April 10th. So we do intend to object on Monday. We will be filing papers to the extent necessary. We did file earlier today an exhibit list and a witness list which we may amend—we certainly reserve the right to do so based on how things develop over the next couple of days—but we will be here on Monday. We will press this objection.

I think we will show Your Honor that—if you’ve heard the expression the fix was in—the fix was definitely in on this auction. And the result is unfair. It’s unfair to the creditors of this estate, and it’s certainly unfair to all of the parties that showed up to bid in good faith and who were met with a cold shoulder from virtually every professional on the Debtor’s side. So with that, I’ll leave it to Your Honor. I’m happy to answer any questions, I’m happy to put my client on the witness stand to answer any questions Your Honor has, but we will see you on Monday if Your Honor adjourns ‘til then.

[…]

THE COURT: All right, thank you. Anything further from you, Mr. Minuti [Diamond’s lawyer]?

MINUTI: Your Honor, just for the record, and it should be clear, obviously we disagree with almost everything that Mr. Teele said. The one thing Mr. Teele did not say that I don’t think he can deny is that the bid that he says is valued at $80 million was withdrawn by them yesterday. So as far as we understand, their position is they have no bid currently pending. But we’ll sort all that out on Monday in the event that Your Honor is prepared to continue the hearing from today. Thank you.

THE COURT: Mr. Teele?

TEELE: If I may just—excuse me. Your Honor, Jason Teele again. If I may just clarify that. Our bid was not withdrawn. There was a subsequent APA that was sent late yesterday in response to a demand by the Debtors which they clearly did not accept because they announced to us by email shortly afterwards that they’re continuing to proceed with the backup bidder. Our email advising them what we were withdrawing said very clearly that we were going back to the bid—to the APA that we presented to them earlier yesterday.

There is a bid still out there, it is still valued at $81 million total consideration, exactly as I just represented to Your Honor. I just want to make that clear for the record.

Why was an additional $12 million for debtor and creditors not wanted? We still don’t know. However the idea that Ad Populum and “Zombie Diamond” (the business run by Getzler Heinrich as bankrtupcy administrators) are in some kind of secret agreement pops up several times in other filings, most notably in Image Comics’s objection to the plan to sell the consignment inventory. I’ve bolded the language for clarity:

When Sparkle Pop did not designate the Agreement, without warning (and without even first moving to reject the Agreement), the Debtors filed the Motion seeking to sell Image’s inventory in a fire sale auction (most likely to Sparkle Pop for pennies on the dollar, rather than the full cure and future performance required under 11 U.S.C. § 365) and use the proceeds to pay their creditors (presumably the Debtors’ pre-petition secured lender turned DIP lender, JPMorgan Chase, since its loan has yet to be fully repaid). This Court should not countenance such flagrant circumvention of 11 U.S.C.§ 365 and outrageous violation of Diamond’s fiduciary duties to Image. 

And later on:

Rather, Debtors seek permission for a bulk fire sale (presumably to Sparkle Pop or another vulture firm that will buy it for a fraction of its retail sale value).

Ad Populum is well known for buying distressed assets and liquidating their inventory, so this is no wild leap of imagination, but a fairly logical conclusion to reach. 

I have heard all kinds of more detailed theories about prior relationships between Gorin, Weinshanker, Steve Geppi and more, but nothing that has any real tangible evidence or that strikes me as particularly credible. As one observer told me though, all these collector/toy maker/bankruptcy administrators types run in small circles so it’s likely they all know of one anotherr even if they hadn’t been inviting each other to their backyard cookouts. 

In any event, Image comics has already settled, in principle, with “Zombie Diamond.” and the groups of game manufacturers represented by GAMA are also in negotiations. These settlements are almost certainly agreements to buy back the stock at a very cheap price. My understanding is that “Diamond” has been making similar offers to other publishers. And for some, it will be a good deal – it’s cheaper than reprinting, and just settles the whole mess. 

WILL GEPPI BE ON THE HOOK?

It’s worth looking at where Diamond owner and founder Steve Geppi lands in all of this. In some of the legal maneuverings the creditors were trying to push today’s hearing back to have more time for discovery. “Zombie Diamond” pushed back against this for a simple reason: this week their $47.7 million debt to Chase Back comes due:

The Debtors are requesting a short adjournment of the hearing on the Consignment Motion (rather than adjourning to the August 18, 2025 hearing date) because, assuming the Consignment Motion is granted, it will enable the Debtors to begin the disposition process for the consigned inventory as promptly as possible. The current maturity date under the DIP Credit Agreement is August 23, 2025. Accordingly, the Debtors intend to implement the Consignment Case Sale Procedures, if and as approved, with the goal to start receiving proceeds from the Consignment Sales before the current maturity date under the DIP Credit Agreement. 

As was reported way back in January when all of this began. Diamond’s loan from Chase was secured by Geppi himself along with some of the debotr companies and some of the companies he owns that don’t fall under the Diamond jurisdiction. 

Interestingly, Diamond $41 million loan from Chase is secured by Debtor Diamond Select Toys & Collectibles, LLC (“DST”), and non-debtor affiliates Rosebud Entertainment, LLC (“Rosebud”), Game Consolidators, LLC (“Consolidators”), and Renegade Games, LLC (“Renegade”), all listed as guarantors and all various companies owned by Steve Geppi or his corporations in some form. For instance, Rosebud Entertainment formerly published Baltimore Magazine.

Or from the filing, the listed guarantors: 

Debtor Comic Exporters, Inc., Debtor Comic Holdings, Inc., Debtor Diamond Select Toys & Collectibles, LLC, and non-debtor affiliates Diamond Comic Distributors UK, an unlimited liability company incorporated under the laws of England and Wales, Rosebud Entertainment, LLC, Renegade Games, LLC, and Game Consolidator, LLC

Forget about creditors getting any money out of this. Between the millions going out to the bankruptcy administrators and lawyers, and the giant debt to Chase Bank, they are very likely to never see a penny. But if the court rules for the publishers and Diamond can’t sell off the inventory, Steve Geppi’s other companies may be taking the hit to pay off all these loans.

No wonder everyone has been very invested in this case