DreamWorks Nightmare: Insider Trading?

DreamWorks Nightmare | Katie Holmes | Ashford and Simpson BBQ | FOX411 6th Anniversary

DreamWorks Nightmare: Insider Trading?

Suspicious sales of DreamWorks Animation stock could be at the core of the Securities and Exchange Commission's look into the studio's dealings.

This morning, in a planned conference call for investors, DreamWorks Animation conceded that the SEC had questions about the way their stock was traded. (DreamWorks recently spun off their animation company, thus creating stock and a public entity open to scrutiny not accorded the main company.)

The company also announced that it had dropped plans to pursue a new stock offering to raise $500 million. They also said that for the last eight weeks, they'd been conducting an analysis of their DVD sales.

On the call, which is available on the Internet, DreamWorks Animation said that things were so bad that even if their planned fall release of "Wallace and Gromit" made a projected $170 million at the box office, it still wouldn't help their bottom line.

But industry insiders apparently knew this was coming because of a class action suit filed against DreamWorks on June 10, 2005.

The lawsuit named DreamWorks' Jeffrey Katzenberg — who is not accused of profiting from stock sales — as well as company officers Ann Daly and Kristina M. Leslie as defendants. Katzenberg is named because he is the head of the company.

The suit claims that the defendants "flooded the market" with DVDs of "Shrek 2" last fall, and followed the release with false claims of success, thus inflating the newly formed DreamWorks Animation company's stock price.

The suit alleges that the company's insiders knew this, and that when the "truth" was revealed on May 10 of this year, the stock price tumbled. By then, according to the suit, all the principals had cashed out and made handsome profits, leaving holders of the common stock to fend for themselves.

For some reason, just about no one covered this story in the mainstream business press or Hollywood trade publications. But the suit — filed on behalf of the class by Milberg Weiss, the same law firm that represented Disney stockholders in the Mike Ovitz suit — is eye-opening.

It alleges what this column and just about any business analyst could confirm: that major sales of stock by DreamWorks insiders look timed to pre-date announcements of bad news and tumbling stock prices.

This could be construed as insider trading, which is what the lawsuit suggests. But insider trading would have to be alleged either by stockholders who bought or sold stock on the same day as the principals, or by the SEC itself, says a well-placed source.

Publicly available records show that the company's two chief operating officers, defendants Daly and Leslie, as well as another officer, Katherine Kendrick (who is not a defendant), sold DreamWorks Animation stock totaling $4.5 million on April 27, 2005, when the stock price was at a high.

Two weeks later, after news that the sales of "Shrek 2" DVDs had not been as strong as promised, the stock began a downward slide.

More surprising is a monumental sale of stock last November by Paul Allen, the former Microsoft founder and investor in DreamWorks since it was started in 1995.

Allen cashed in 4,901,858 shares of stock on November 4 of last year and pocketed an astounding $137,252,024. (The Milberg Weiss lawsuit claims Allen actually made almost $184 million that day.)

That was only a week after DreamWorks Animation had been spun off into a public entity, but around the time the "Shrek" DVD went on sale to much hoopla. Allen, an outside director, is not named as a defendant in the class action suit.

Also on Nov. 2, 2004, Lee Entertainment -- owned by the same Korean family that owns Samsung -- sold 775,213 shares of DreamWorks Animation stock and claimed $21,705,964.

When Allen and Lee sold, the stock was at $28. When the three officers took their money, the stock was at $37.62. This morning, DreamWorks Animation stock was selling at $23 a share, down about 4 points or almost 14 percent.

Ironically, DreamWorks' live action studio, run by David Geffen and not part of the class-action lawsuit, is on the verge of a big summer.

Tonight, the studio is premiering "The Island," directed by Michael Bay ("Armageddon," "Pearl Harbor"), starring Ewan McGregor and Scarlett Johansson.

This fall they'll release what's said to be Woody Allen's best movie in almost a decade, "Match Point." And Steven Spielberg is now filming his movie about the 1972 Munich Olympics, due in time for Christmas release.

Katie Holmes: 'War' Has Just Begun

Katie Holmes' interview in W magazine has set off a firestorm.

Reading it can only be even more worrisome for her parents as they see the steady hold Tom Cruise and Scientology have taken of their beloved daughter.

There is no way to minimize the frightening aspect of the interview.

Holmes, who previously was a sweet, thoughtful, articulate young woman, now comes across like a zombie.

She's accompanied on the interview by Jessica Feshbach Rodriguez, her Scientology minder.

You may remember that I told you about Feshbach some weeks ago. Her family is a top financial donor to Scientology.

Feshbach, whom Holmes calls her "best friend" in the interview, after six weeks of knowing her, is a high-level Scientologist.

According to the various Web sites that monitor the L. Ron Hubbard-founded religion, Feshbach completed courses called "Security Checker Internship," "False Purpose Rundown Auditorship" and "Clear Certainty."

According to those who accompanied Holmes through her various publicity trips this spring, Feshbach has never left her side.

Neither have other "monitors" who followed Holmes everywhere she went, according to sources, constantly whispering in walkie talkie-like devices (those things that are strapped to wrists, connected to ear pieces) even when she was going to the bathroom.

In the meantime: Yesterday, the New York Post's Page Six gossip column reported a story that was sent out by an anti-Scientology watcher on Friday.

It's the news that Cruise and Nicole Kidman's 12-year-old daughter Isabella Cruise has been listed in the Scientology bulletin for completing the basic course. She's under the name "Bella Cruise."

This can only be heartbreaking for Kidman, who — as Holmes once was — is a devout Roman Catholic from an observant family.

This column reported exclusively a couple of weeks ago that the Cruise-Kidman kids are educated at Tom's home in Beverly Hills by his two sisters, with an emphasis on the teachings of Scientology.

This raises the question of who has custody of their children. The answer seems to be Cruise, because the kids must be in his home every day for their schooling.

As for Holmes, the W interview — conducted by Rob Haskell — features comments from the omnipresent Feshbach (who goes by her second husband's name, Rodriguez).

When Holmes is asked to describe her feelings for Cruise, Feshbach interrupts and says, "You adore him."

During the interview, Holmes — in a very choreographed stunt — receives an expensive "surprise" gift from Cruise.

If the whole point of the Cruise-Holmes "romance," though, was to sell "War of the Worlds," then it's time to take a look at the results.

"War" had a tough weekend, finishing second to "Fantastic Four" and taking in $31 million. That puts its domestic box office at $165 million.

The movie, however, cost $182 million. So how does that break down?

First, take $40 million off the top for Cruise and director Steven Spielberg.

Then split the remainder in half, because the record 3,900 screens on which the movie is playing get 50 percent of the take.

That leaves us with $67.5 million with which the studio can now pay bills.

But the bottom line is $120 million away. That would have been all right if "War" had had a bigger first weekend and more momentum now. But "Fantastic Four" has put one nail in its coffin.

Come Friday, both "Charlie and the Chocolate Factory" and "Wedding Crashers" will come like steamrollers over "War." The result is going to be bloody, with "War" likely to do less than $15 million and finish fourth.

For Cruise, it doesn't matter. He's rich, and he's isolated. If "Mission: Impossible 3" goes into production, he'll spend even more. Oprah will continue to bow to him, although, to her credit, even Rosie O'Donnell has publicly disowned him in the Brooke Shields deal.

For Spielberg, "War" is behind him. He's already making his next film, which — if he's on target — will wipe out all the bad feelings about "War."

The real loser in all of this? Why, Katie Holmes.

In the last few weeks, her agent and manager have been dismissed, and a really great, much-coveted film role — that of Edie Sedgwick — has been taken from her. The producers of "Batman Begins" already have said she won't be back for the sequel.

But she's still got her new best friend, and a watch from Tom.

Solid: Celebrity Weekend BBQ With Ashford and Simpson

John Fogerty's ears must have been burning on Saturday.

That's because around 5 p.m. EDT, about 300 people dressed only in white clothes spontaneously broke into a slow rendition of his song "Proud Mary" around the backyard pool in Westport, Conn., belonging to Nik Ashford and Valerie Simpson.

Of course Ashford and Simpson are better known as the composers of dozens of classic Motown hits, such as "Ain't No Mountain High Enough" and "I'm Every Woman."

Every summer they throw a party on July 4th weekend.

This year they were late, but everyone came anyway, including Maya Angelou, soul star Chuck Jackson, legendary Teddy Pendergrass, singer Nona Hendryx and composer Vy Higginsen.

All guests were required to wear only white, and so they did, making the couple's eight-acre estate look like a landlocked regatta.

Ashford and Simpson, you know, have been married 31 years and have two daughters. They're a rarity in show business.

For one thing, neither of them has seemed to age at all. Their first hit was Ray Charles' "Let's Go Get Stoned," back around 1966.

They wrote all of Marvin Gaye and Tammi Terrell's hits. When Tammi was sick, and wasn't singing well, it's Valerie who filled in. You can hear her beautiful voice on the records. (A&S are two of the few songwriters who can also sing.)

Not only do they put on a sumptuous barbecue, but they also give their guests a show. Angelou did the narration as Valerie (in a Tina fright wig) and three friends dressed up as Tina Turner and the Ikettes to perform "Proud Mary."

A few seconds in, though, the sound system failed. Didn't matter: the guests just kept on singing, not missing one of the words.

You know you're in a music crowd when not only does everyone know the Ike & Tina version of the song but the men do the bass line ("rollin' on a rivah").

Nik played "Blackman," the alter ego of "Batman," in a skit that even got poet/philosopher/writer Angelou to say: "Batman is all that."

And George Faison — who choreographed "The Wiz" on Broadway — danced around the pool dressed as, to quote Angelou "the much maligned" Michael Jackson. That was quite a sight.

The big news? Patti Austin, the great singer whose hit "Come to Me," with James Ingram, is still a radio classic, has lost 120 lbs.

I asked her if this had affected her superb voice?

"No," she said, "It's even made it better."

Patti is touring all summer with symphony orchestras. Make sure and catch her if you can.

FOX411 Sixth Anniversary

This column commenced on this Web site six years ago today. It seems like yesterday!

Our first story was about soccer star Mia Hamm's busy professional and personal life, followed by the news that the family of Nicole Brown Simpson was living off the money they'd collected for their tax-free charity. We never looked back.

This column was the idea of Laura Durkin and Refet Kaplan. This writer actually selected the name of the column, and here we are all that time later, survivors of the Internet "boom." Today, FOXNews.com is a big success, with a dedicated, talented staff.

Congratulations and thanks to everyone!