DreamWorks Animation in More Hot Water

DreamWorks Scandal

'Shrek' Creator in Shreds

The chaos at DreamWorks Animation is getting worse, not better.

On Monday the company filed notice with the Securities and Exchange Commission that on July 22 it materially altered the employment agreements for two top executives in relation to a third executive.

In the filing, DWA said that Katherine Kendrick and Katrina Leslie, general counsel and chief financial officer, respectively, would now report to Chairman of the Board of Directors Roger Enrico and CEO Jeffrey Katzenberg.

Prior to this change, Kendrick and Leslie reported to Katzenberg and to Ann Daly, the chief operating officer. Now Daly seems to have been relieved of overseeing the other two women.

Perhaps coincidentally, Daly, Kendrick and Leslie are thought to be at the center of an SEC investigation into insider trading at DreamWorks Animation. I reported in this space two weeks ago that on April 27, 2005, all three women suddenly sold off nearly $5 million worth of the company's stock.

Two weeks later DWA announced revised estimates for DVD sales of "Shrek 2," which sent their stock price plummeting.

Changing these agreements may be an olive branch offering from DWA to the SEC as the investigation proceeds.

Today, DWA is trading at around $22.60, its all-time low since opening last October around $47. This is either despite or because of a rumor that was floated in the business press this morning that GE/Universal was in some kind of talks to buy not DWA but the live action side of DreamWorks SKG, which is privately held. That part of DreamWorks is now sitting on a potential disaster with a money loser in "The Island," a $130 million feature that had a poor first weekend.

But a sale of DreamWorks to GE/Universal, while possible, also seems like a rumor we've heard before. In its early days, DreamWorks often floated that same rumor, and it appeared in print countless times without any result.

More recently, David Geffen, one of the three principals of the company, said in an interview that the company was probably worth $1 billion. That may be something of an overstatement, however, considering that, aside from "Shrek 1" and "Shrek 2," DreamWorks has not had major hit in some time.

All of this is a little dispiriting considering the bravura with which DreamWorks was launched in 1995 by Geffen, Katzenberg and Steven Spielberg. The company has had two Best Picture winners in "American Beauty" and "Gladiator," not to mention several other critical successes with "Saving Private Ryan," "Almost Famous" and "What Lies Beneath."

But something seems to have gone terribly wrong recently. News of this latest SEC filing may or may not be a signal of what's to come next. The company known for "Shrek" may be known as Shreds soon.