NASCAR Heat 5 securities fraud case rules in favour of Motorsport Games

Embattled video game developer and publisher Motorsport Games can breathe a sigh of relief as a Delaware court has recently ruled in its favour.

The judgment stems back to pre-COVID-19 times, and specifically the NASCAR Heat 5 video game.

In 2018, Motorsport Network (which would later spin off its gaming division on the Nasdaq as ‘Motorsport Games’) invested in 704Games, then owned by an outfit called Innovate. By 2021, it had completed the acquisition of 704, which developed official NASCAR video games.

In 2019, NASCAR Heat 4 was created for 704 by Monster Games, but for the next game, Motorsport Games would take the development reins for the first time.

The Miami-headquartered company was working on an all-new NASCAR game, which would end up being the lacklustre NASCAR 21: Ignition. But before that was ready, it needed something for 2020, which ended up being the quickly-created Heat 5, which took Heat 4 and added a roster update.

It transpires that Innovate 2 Corp (a subsidiary of Innovate) divested shares at a lower rate that it had initially expected, following a presentation by Motorsport Games in June 2020 that allegedly explained Heat 5 “pre-sales are struggling.”

This was during former CEO Dmitry Kozko’s tenure, which ended in 2023, with the current incumbent, Stephen Hood, placed in April of that year.

It follows the years preceding, before Motorsport Games’ investment in 704Games, where the company “struggled to turn a profit” and “basically every year the company ran out of money,” according to the case heard by Judge Stephanos Bibas.

Ultimately, sales would surpass those projections, results which prompted Innovate to file a lawsuit claiming securities fraud.

However, the Delaware court ruled emphatically that there was “no fraud.”

“One company sold its shares in another for what, in hindsight, appears to be less than it could have gotten if it had held onto them. But not every poor investment decision is due to securities fraud.”

“Innovate has no evidence that anything Motorsport [Games] or 704Games said was false or misleading when it was said.”

It concluded that Innovate 2 Corp’s claims not only failed as a matter of law, but it breached its contractual obligation not to sue.

Consequently, Innovate and Motorsport Games have been ordered to meet later this week (12th March) to discuss the latter’s damages and counterclaim.

“It is pleasing to receive this judgement from the Court in this matter,” said Hood.

“The Company [Motorsport Games] and its former representatives have always maintained they acted in good faith and the Judge’s ruling supports this.”

“Our restructured Company [Motorsport Games] is pleased to put this matter behind us and continue to focus on making great racing game experiences, such as Le Mans Ultimate, as we continue to build on its promising foundation.”