CIG v DEFY MEDIA
Unless you’ve either been in a coma since 2012, or just crash landed on Earth, you’ve probably heard of the on-going train wreck that is the Star Citizen videogame project.
A lot has been written about it; ranging from the defects in the project promises, to the toxic members of the project backers who are waging a war of attrition against dissent. As these things go, seeing as this is videogaming where drama rules the day, one media outlet, having been contacted by ex-employees of the company, decided to investigate. That being The Escapist, for which Liz Finnegan wrote a scathing article back in 2015 entitled Eject! Eject! Is Star Citizen Going to Crash and Burn?. This was during the height of the drama following the Interstellar Citizens blog which I had written months earlier in July. It had all started with their Star Citizen Employees Speak Out on Project Woes article.
It would have been just another article, were it not for the fact that Chris Roberts, creator of the project and head of CIG/RSI, decided to go off a cliff, and write the most infantile rant (archive) ever. Defamation and legal issues aside, it was quite the piece of work. Oh but they didn’t stop there. Ortwin Freyermuth, his long time business partner, upped the crazy ante a notch by making a baseless, and toothless threat of legal action against The Escapist and its parent company, DEFY Media. Of course, crazy only goes so far, because despite Roberts mentioning me over three dozen times in his response, even trying to connect the writer and myself to GamerGate, I never did receive any legal threats from them.
Naturally, most of us who aren’t frigging idiots, or illiterate as it comes to these things and the law, just pointed and laughed. Many memes were created; and the lols were plentiful. The media (1, 2, 3, 4, 5, 6) had a field day, and heck even Ken White over at Popehat, had this to say:
“Freyermuth is a founder, Vice-President, and in-house lawyer. He’s a fact witness to what’s going on at Cloud Imperium. When he writes a five-page semi-legal rant, he’s just creating cross-examination fodder. Moreover, “look, I am referencing lawyers, and even cc’d them” doesn’t convince anyone who knows how litigation works.
Plus, while Freyermuth makes a fairly convincing case that the Escapist was gullible, that’s not the relevant standard. The company, and Chris Roberts, are almost certainly public figures, or at least limited-purpose public figures in the gaming world. That means they’d have to prove actual malice to win a defamation case. Constitutional “actual malice” doesn’t mean ill-will, as Freyermuth’s letter seems to imply. It means knowledge that the statement is false, or reckless disregard for the truth — that is, publishing despite serious doubts about its truth. Cloud Imperium isn’t going to satisfy that standard.“
Shortly thereafter, having been accused of everything under the Sun, including colluding with me, The Escapist issued a statement standing by their stories.
“The Escapist, notwithstanding Cloud Imperium Games’ notice and posting, stands by its coverage of Star Citizen and intends to continue to investigate the developing story. Since publishing our original stories, we have been contacted by, and are currently interviewing, additional sources corroborating a variety of the reported allegations. Additionally, if Mr. Roberts’ offer for The Escapist to “meet the developers making the game and see how we’re building one of the most ambitious PC games first hand” remains open, we take the opportunity to accept such invitation so as to hopefully provide the public with sufficient information and opportunity to vet such sources’ allegations and claims for themselves. We have also communicated the foregoing directly to Cloud Imperium Games.“
The most hilarious part of all this? I had nothing to do with the stories, and I wasn’t a source. Like everyone else, stuff appears in my blogs, and people are free to use and share as they see fit. That’s how the Internet works.
The main issue here is that, since I was brave enough to write that first blog, and which contained sentiments others were already thinking, whispering, or discussing in the back alleys of the Internet, I became the face and target of the company’s attacks, as well as that of the many toxic backers of the project. They were all basically mad that I brought a megaphone to the noise already surrounding the project.
That was in 2015.
Fast forward over two years later, and not only have most of what was written in The Escapist stories and my blogs come to pass, but still, neither of the two promised games (Star Citizen and Squadron 42) have been delivered to backers. In fact, as I wrote in my Irreconcilable Differences (Dec 2016) and Shattered Dreams (Oct 2016) blogs, the project is arguably dead. That’s even after raising over $145 million to date. And during that time, CIG/RSI have used every trick in the book to not only continue bleeding their whale backers dry, but to also take back various promises made since the onset of the project. The culmination of all this nonsense has led to the on-going refund rush that’s in full swing; even as backers with thousands of Dollars in the project, put in for refunds. Gee, one wonders why they’d be doing that.
But this is the part that should concern not only the gaming media and gamers in general, but also anyone who is paying even a cursory bit of attention to events surrounding this project.
It recently came to my attention that, merely weeks ago, all articles written by The Escapist, as well as the diatribes by both Chris Roberts and Ortwin Freyermuth, have been removed from their respective websites. The last web capture of The Escapist article (archive) was on Mar 9th, 2017; while for the insane Chris Roberts rant (archive), it was Jan 19th, 2017. Normally, that sort of thing tends to happen only during lawsuits in which either one side wins, or during a lawsuit that’s settled out of court before it goes to trial. As of this writing, no lawsuits – here in the US or in the UK – were found to have been filed by CIG or any of its many shell companies which sprung up around the project. So I went digging.
This is the official statement sent to me by DEFY Media after I sent in a request for comment, as part of my research for this blog.
“In response to your request for comment, I can share that CIG and The Escapist have mutually agreed to delete their comments about each other. We wish each other well and look forward to better relations in 2017.”
From what I have gathered from various sources, basically both sides decided to stop spending legal fees and time on “nonsense“. CIG stood absolutely no chance of prevailing, not only on merits, but whatever claims they thought they had, would never have survived a motion to dismiss. But DEFY Media, in order to get that far, while running the risk of going beyond such a motion, opted not to keep spending money on an asset (The Escapist) that apparently was no longer a “going concern“. In other words, The Escapist, like most online gaming sites, isn’t making enough money to warrant a long drawn legal battle over words. In fact, The Escapist, barely a year ago, scaled down significantly; and word is that the site is now down to a handful of contributors, and that DEFY Media may very well shutter it in the short term future.
It is important to note that DEFY Media, isn’t broke. In fact, just this past Sept, they raised $70 million in a Series B funding round. Regardless, unlike CIG which has free money from thousands of gullible gamers, DEFY has investors who, unlike Star Citizen backers, tend to want to know how their money is spent, and how they expect to get a return. If this farce was targeted at any other DEFY property – which are making money – my guess is that we’d be writing about the lawsuit by now. And we’d probably have access to CIG’s financials – something that backers have been clamoring for.
Meanwhile over at the dreams factory…
Anyway, when all is said and done, it all boils down to this:
“CIG basically used backer funds given to them to build these games, to strong arm and silence a media site that published a series of unflattering articles about the Star Citizen project. Particularly, a multiple awards winning gaming news site that published an article which was nominated for, and later won, a Society Of Professional Journalists award for that very same 2015 article.“
Let that sink in.
Now imagine if this was EA, Activision, Microsoft, or any other publisher that usually ends up in the news for the silliest of things from which drama tends to erupt; there would be headlines all over the place. Heck, even when Kotaku (UK) wrote a series of investigative articles about this on-going farce, the noise was deafening; but so far, no legal threats that we know of.
In all seriousness, from a financial standpoint, I get why DEFY would have opted out of a long drawn legal battle over this; but it still doesn’t make it right. Aside from the fact that any legal expenses o.b.o of The Escapist which isn’t likely to be around for long, would be foolish. So it stands to reason that it would be even unwise considering that not even CIG is likely to be around by the time the legal dust settles. So why bother?
The problem for CIG now is that the diatribe wasn’t just about The Escapist, or the writer – it was also about me. And CIG taking it down, doesn’t satisfy or alleviate any claims that me, the writer of the article, or the then EIC, may or may not have against CIG or Chris Roberts if we decided to pursue those claims down the road.
2015, THEN AND NOW
To be perfectly honest, I’m a tad disappointed that they have basically opted not to foolishly sue me; let alone send me any more legal threats. But that could probably be because they already know by now who they’re dealing with. Notwithstanding the outcome of the last time that Ortwin got into a tussle with my attorneys after he sent me a ludicrous letter, falsely accusing me of stalking (lol!!) because I made it public that Chris Roberts and resident drama queeen, Sandi Gardiner, were in fact married, thus lending credence to my nepotism claims. Even according to various sources, this was something they had tried hard to keep a secret. That was until sources leaked the info to me; even though the evidence was always there in plain sight. I wrote about it in a blog, then other sources confirmed it to The Escapist, thus forcing Chris Roberts to address and admit to it in his diatribe. Boy was he mad.
In 2015 while all of this was going on, as a backer myself, I had taken legal action in which I asked them for three things.
- Refunds for backers who asked for it. They resisted this until a brave backer, reading my blogs, decided to get State officials involved after they refused his refund. The end result basically proved what I had been saying all along, that the ToS (which has been revised several times and skewed in favor of CIG) wouldn’t hold up to any legal scrutiny if backers were being refused refunds. I wrote about this in detail in my Star Citizen Refund Debacle blog. And just like that, compared to previous years, refunds were a thing. Not to mention this recent case brought by the CA District Attorney over the Lily drone crowd-funding fiasco. That case, like other State actions against crowd-funded projects, sets yet another standard and precedent for what I believe is coming down the line for Star Citizen if they continue along this path of non-delivery. It’s just too big to ignore.
“There’s also a slightly technical issue that forms a second front in the DA’s lawsuit: the fact that they went with an independent “pre-order” strategy rather than an established crowdfunded development site like Kickstarter. That makes Lily’s money qualify more on the side of internet sales than investment in an idea (something Kickstarter and its projects are always careful to explain), which exposed the company to certain consumer protection laws.“
- A schedule that backers can rely upon as an indicator for when they would get the games they paid for. CIG refused to do this until Dec 2016 during a major backer backlash after they – again – missed the 2016 ship date for both Star Citizen and Squadron 42, then never gave any forewarning. Then, out of the Blue – without forewarning – there was a schedule. And it was largely bullshit because not only was it not even complete, let alone detailed, what they ended up releasing in 2.6.0 and 2.6.1 barely contained what was promised, but also contained a slew of things that weren’t even in the schedule to begin with. Which means that they were just sharing what they felt was enough to keep backers on a leash. The practice continues in the current 2.6.2 schedule.
- The promised financial accountability promised in the ToS which they used as a way to gain backer confidence. Given the controversy surrounding the claims of monies $145 million to date raised (1, 2) for the project, not to mention the Red flags in the filings of the UK entities or the disparity in the funding chart (which doesn’t appear to take into account backer refunds, bank loans, and investor money), it is highly unlikely that outside of a lawsuit (whale backers, investors, State and/or Fed officials) that backers will ever get this financial accountability. And the arbitration clause in the ToS pretty much represents the first hurdle for whale backers because only investors, State and Fed officials can get around that, as they are not bound by the ToS.
So, when you look back, inside all that noise, two years later, they’ve not only failed to deliver the games, but I have somehow managed to get two out of the three things that I had asked for. And without having to step foot in court. But no matter how this ends, I’m 100% certain that I’m going to end up being centerfold in whatever legal action comes from this train wreck down the line. I can’t wait; because there’s so much to this story that’s yet to be told, that I am deliberately holding back on publishing my book on this farce, hoping that I get to give it the conclusion that it deserves.
THE MONEY LAUNDROMAT
Money laundering (1, 2, 3) comes in all forms, not just restricted to drugs, smuggling or whatever. In its simplest form, a stolen credit card used to purchase goods, which are then fenced or sold, results in clean money.
For sometime now, despite overwhelming evidence pointing to the fact that the Star Citizen project is FUBAR, not only are we still seeing and tracking various spikes in funding, as well as the sales (not illegal btw) of digital items from the game, but also CIG has recently started asking for ID from backers who want a refund. The speculation has been rampant that there is some semblance of money laundering possibly going on, due to how the Star Citizen project funding works. Besides buying the game for $45 (or the pair for $60), you can also purchase high value items, some as high as $15K (!). And a large number of those digital assets still only exist as JPEG concept art. No joke.
However, unlike crowd-funding sites such as FIG, which sells SEC approved shares to accredited investors, Star Citizen backers are not investors. So any money going into the project, then goes into the pockets of the company. All a backer can expect in return, are the digital goods they purchase (trust me on this, it’s a sale, not a pledge) through the project – which, now in year six, is still in pre-Alpha. This structure and ease of use, not only allows unscrupulous individuals to put dirty (e.g. stolen credit cards, drug money etc) money into the project, but to also take out clean money via refunds or sales in the all-but-decimated (changes made by CIG, as well as the refund rush, have severely affected it) Black market of digital items on eBay, and mostly on Reddit.
Take a look at this chart dump from last month. In what is one of the worst funding quarters, there were no less than five sales of $15K Completionist packages in Feb 2017 alone.
The other side of this coin is that despite the fact that CIG had promised to make public the financials for the project, they have refused to do so. The funding chart, long suspected to be inaccurate, and which various sources have said they are willing to testify under oath as to how it’s being manipulated, is claimed by CIG to only track backer money. CIG also claimed that it doesn’t account for the monthly subscriptions which, hilariously enough, some backers are actually paying for. So taken at face value, if the chart doesn’t account for subscriptions, refunds, loans, and investor money, it stands to reason that this chart is clearly inaccurate and misleading. Which in turn makes it ripe for manipulation. It also means that, on the face of it, the project has less than the $145 million claimed to have come from backers.
So, has CIG started requesting ID for refunds because they too suspect that some fishy business is going on, or is it a ploy to discourage refunds from all backers alike? The curious part of this is that some backers who refused to provide ID, still got their refunds. On the face of it, if you’re laundering money through Star Citizen, the last thing you want to do is provide CIG with your ID because then it’s all going to get traced right back to you if things go South. So what do you do? You leave the money where it is, or try to sell the account at a loss on the Black market to get some of the money out.
To be clear, I am not accusing CIG or the project backers of money laundering, nor do I have any proof of same. That’s a job for State and Fed officials; or the backers unlucky enough to find themselves in a lawsuit with CIG down the road over what happened to their money. It’s all so very curious. And if you go back and read about all the many cases of money laundering, RICO cases etc, most of them had the appearance of legit business that to even posit the possibilities of money laundering, would be preposterous.
Which brings me to the next part of this. But first, do you know what Affinity Fraud is?
“Affinity fraud almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme). Many affinity frauds are Ponzi or pyramid schemes, where money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful. This tricks new investors into investing in the scheme, and lulls existing investors into believing their investments are safe. In reality, even if there really is an actual investment, the investment typically makes little or no profit. The fraudster simply takes new investors’ money for the fraudster’s own personal use, often using some of it to pay off existing investors who may be growing suspicious. Eventually, when the supply of investor money dries up and current investors demand to be paid, the scheme collapses and investors discover that most or all of their money is gone. “
GIZMONDO MONEY LAUNDERING OP
In my 2015 Interstellar Pirates blog, I had written about this Gizmondo fiasco, and how several of the execs currently involved in Star Citizen were a part of it. Basically, it ended up being a major money laundering operation.
Five of the six top execs involved with Gizmondo, Chris Roberts, his brother Erin Roberts, their lifelong friends, Nick & Simon Elms (brothers), Derek Senior – all from Manchester – through their previous company Warthog (which made Starlancer, a space combat game by the Roberts bros), were associated with the company. Simon Elms, the CFO of Foundry 42, was also the CFO for Warthog which was bought by Gizmondo, and became Gizmondo Texas. Gizmondo had previously bought Tiger Telematics which was used as the entity company to purchase Warthog.
Gizmondo was a money laundering front for the Swedish Uppsala mafia headed by Swedish Gangster named “Fat Steve”. Along with his partner Mikael Ljungman, they bought the company. Simon Elms was the CFO for Gizmondo since the begining and he was also director of several companies, including Virtual Poker (of which both Simon Elms and Erin Roberts were officers). That company was quietly dissolved in early 2008, while Gizmondo went bankrupt later that same year.
Swedish newspapers reported that, among other things, the crooks who founded Gizmondo were previously involved in various illegal activities. Those included distributing counterfeit money, blackmail, extortion and assault. And the icing on the proverbial criminal enterprise cake is that they were debt collectors for the Swedish underworld aka the Uppsala mafia. Stefan Eriksson, Executive Director at Gizmondo Europe, was previously convicted to five years in prison in 1993 for planning to distribute counterfeit money. He got another five years for trying to defraud financial institution for approximately $3 million. Peter Uf, also a director, was previously sentenced to almost 9 years on similar charges as Stefan. Johan Enander, head of security at Gizmondo, had been convicted for blackmail and aggravated assault. Later in 2009, Mikael went to jail for various financial crimes and Carl Freer was being investigated by the FBI on RICO charges.
When Warthog ended up in financial trouble, it was bailed out by Gizmondo, and then became Gizmondo Texas. The company was supposed to have been working on various casino games which were to be released for the Gizmondo device. These are games that were reportedly never going to be released, since the device was nothing but a pipe dream. That company was dissolved before this was all publicly known.
After it all collapsed, Simon Elms later went off to Cubic motion, and Nick Elms and some other guys set up Embryonic studios. Erin showed up at some point. Embryonic was later bought by Travelers Tales. Erin and Nick were there for awhile, until Chris showed up with a bag of money and asked his brother and his band of merry men to join him on his epic quest for loot: that being the pipe dream that was to become Star Citizen. Chris then built his brother a brand new, multi-million dollar studio, Foundry 42; and gave him Squadron 42 to develop.
These are the same people currently running the Star Citizen project which, now two years overdue and $145 million (not including loans, investor amounts) later, has thus far failed to deliver either of the games promised.
GERMAN LAWSUIT OVER MOVIE FUNDING
It’s no secret that since the collapse of Digital Anvil, the Chris Roberts founded studio that Microsoft bought, and subsequently kicked him out of, Chris Roberts and his long time business partner, Ortwin Freyermuth have been involved in various failed ventures. Some of which have failed under dubious and/or curious circumstances resulting in the total loss of investor money. Ascendant Pictures was one such venture.
That aside from their run-in with Kevin Costner.
“Between November 2005 and March 2008, Ascendant Pictures and Kevin Costner were in a legal battle. The subject of litigation was the claim that the Film company promised Costner that he would be able to star in a film called Taming Ben Taylor, about a bitter and divorced man who refused to sell his winery to the neighboring golf course. They promised him in December 2004 that the $8 million deal would go through regardless of production financing, but by June 2005 he was told that the movie wouldn’t be going forward after all. The court papers state that Costner was misled about Ascendant Pictures ability to make the film, being strung along for several months of delays. In that interim he had to pass up on several other job offers. Ascendant Pictures later filed a cross-complaint that the Creative Artist Agency that represented Costner was the one responsible for misrepresenting the situation, and that they turned away actresses and directors that could’ve been involved, ending up hurting the financing prospects of the project.”
Over in Germany which gave tax credits to firms making films, Andreas Schmid the head of one such fund, was arrested and jailed on fraud charges.
“The case against Schmid and VIP focuses on film funds VIP 3, which backed such pictures as Jonathan Hensleigh’s “The Punisher,” Andrew Niccol’s “Lord of War” and Mike Binder’s “The Upside of Anger,” and VIP 4, which bankrolled upcoming projects that include Paul McGuigan’s “Lucky Number Slevin,” Tom Tykwer’s “Perfume: The Story of a Murderer” and Roland Emmerich’s “Soul of the Age.””
Both Chris and Ortwin were linked to this German film fund fiasco through their movie companies; particularly Rising Star Pictures. As reported (1, 2), the scheme was one in which investors would fund films, and were promised a huge return on investment. Some of those films were either never produced, or were produced at a huge loss. The tax incentives for those loses remained with the company, while the investors lost their investment in whole or in part. In 2007 Andreas Schmid and Andreas Grosch were both sentenced by a German court because they defrauded investors. Schmid was sentenced to 6 years in jail. You can go to bundesanzeiger.de and search for both Chris Roberts and Ortwin Freyermuth to read the proceedings.
It’s crazy to think that, of $750 million, only 20% of that investor money ever made it into any film production. When one of the investors sued the bank and the fund company, and both Chris and Ortwin were required to testify in Germany on 07/16/2010, a funny thing happened. They sold the company to Bigfoot Pictures, and it was announced on 07/06/2010.
Around the time when the fund raised over $350 million, most of the money went into Chris and Ortwin’s movie projects. Though all the money was to be spent on the movies, and the investors would then claim that in their taxes; that never happened. Basically, about 20% of the money went into making the movies, while the rest was paid out to various unknown deposit accounts. Then – get this – it was later discovered that the execs may have used investor money to guarantee loans matched to 80% of what the fund raised. The end result is that the 80% couldn’t go toward tax benefits; thus leaving the investors holding the bag. Records also show that Chris Roberts had to give 15% guarantee to investors; but that guarantee also came from investors. Then when some of the movies turned a profit, apparently only 20% of that went to the investors; while the rest were used to repay the loans.
As these things go, hilariously, it all eventually collapsed. And as was the case with Gizmondo, someone went to jail over it.
At the height of the on-going Star Citizen funding pitch, this is a BAFTA presentation (23:05) that Chris Roberts gave in 2015, and in which he brags about this very fiasco with the German fund, while failing to mention that five years to the date of his presentation, the fund had ultimately collapsed.
Before that, in June 2014, in this gamesindustrybiz article, How indie film financing could shape the future of games, Ortwin discusses how the model for funding indie films, could be applied to funding indie games. Right.
It should be noted that, aside from all the usual suspects from these failed ventures, and who are now involved in Star Citizen, John Schimmel who used to be “President of production” at Ascendant, is also part of the Star Citizen project; along with Ortwin Freyemuth, the Roberts brothers, the Elms brothers – and all their cohorts (some of them, such as Tony Zurovek and Eric Peterson, from back in the day) enrolled in their friends and families program.
Yeah, none of this is a coincidence though. Like, at all.
These are the same people currently running the Star Citizen project which, now two years overdue and $145 million (not including loans, investor amounts), has thus far failed to deliver either of the games promised.
SO WHAT NOW?
Now we wait for the other penny to drop. And from what I’m hearing, it won’t be long now.