By Stephanie Barnes
In March 2022, Innovate 2 Corp (“Innovate”) filed a lawsuit against Motorsport Games Inc. (“Motorsport”) under the Securities Exchange Act of 1934 (Innovate v. Motorsport, 2022). The lawsuit included allegations of securities fraud, insider trading, and control person liability against Motorsport executives Mike Zoi, Jonathan New, and Dimitry Kozko. Additionally, Innovate brought common-law claims of breach of contract, breach of fiduciary duty, fraud, and unjust enrichment against the company. Judge Bibas of the Delaware District Court deemed all the claims to be plausible and allowed the case to proceed.
In February 2025, Judge Bibas granted summary judgment in favor of the defendant, Motorsport, on all counts. The outcome reinforced the notion that it does not matter what you believe, but only what you can prove.
Background
Motorsport serves as the controlling shareholder of the videogame developer, 704Games. In late 2020, Motorsport successfully acquired the three minority shareholders: HC2 Holdings 2 Inc., Continental General Insurance Company, and Leo Capital Holdings. Following this acquisition, Motorsport obtained full ownership of 704Games and went public in 2021.
On the first day of trading, the value of Motorsport stock rose significantly from the sale price of $11.29 per share to $38. Given that the 704Games’ NASCAR Heat Series accounted for 99% of their total net revenue, this drove the value of Motorsport’s initial public offering (IPO), and the shareholders believed that this success reflected the actual value of 704Games and that they should have benefited from it.
The former minority shareholders, angered by the increase in stock value, accused Motorsport of providing a misleading outlook regarding the future of 704Games. They claimed they were deceived into selling their shares at a lower price. Additionally, they alleged that critical information about the IPO was unlawfully withheld from them, specifically the fact that the IPO was already underway and that the valuation of Motorsport would primarily depend on the value of 704Games. As a result, the shareholders filed a claim for securities fraud, along with allegations of breach of contract, breach of fiduciary duty, and claims of fraud and unjust enrichment.
Securities fraud is “the illegal deception of investors in the stock market, tricking them into making decisions based on false information for the fraudster’s gain” (Kohn, Kohn, & Colapinto, 2025). To establish a claim for securities fraud under §10(b) of the Securities Exchange Act of 1934, the shareholders must allege that: (1) the defendants made a “material misrepresentation or omission”; (2) intentionally or recklessly; (3) in connection with the sale of the stock; (4) and in that reliance, the shareholders suffered economic loss (Innovate v. Motorsport, 2022, p.4). To win the case, a plaintiff must prove each of their accusations.
The opening line of Judge Bibas’s opinion states, “A shareholder with a controlling stake in a company has great power. With great power comes great responsibility…And it may not exploit its insider position to buy out the minority shareholders at a discount” (Innovate v. Motorsport, 2022, p. 2). He asserted that if the allegations made by the shareholders were true, they would constitute securities fraud, thus rejecting Motorsport’s “invitation” to dismiss the claims. By March 2022, they were, quite literally, off to the races.
Summary Judgment: It’s Not What You Know, It’s What You Can Prove
Summary Judgment is a judgment entered by a court for one party and against another party without a full trial (Cornell University, n.d.). It is awarded in civil cases if there is “no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” (Innovate v. Motorsport, 2025, p. 5). In simpler terms, summary judgment is a win for the requesting party without having to go to trial.
In this case, all eight claims made by Innovate interestingly focused on the same fraud claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5(b). Innovate was required to demonstrate all six elements of fraud, but failed to even establish the first one. The failure of the first claim led to the dismissal of the subsequent claims as well.
It is possible that Motorsport did not act in good faith and may have intentionally misrepresented the value of the 704Games stock. However, allegations of fraud must be supported by essential facts that substantiate these claims. The claimant is required to provide evidence that allows for an inference of fraud based on the preponderance of the evidence. Innovate was unable to present the necessary facts, leading Judge Bibas to rule in favor of Motorsport regarding the fraud claims (I-IV). As a result, Innovate’s claims V-VIII, which included breach of contract, fraud in the inducement, breach of fiduciary duty, and unjust enrichment, were dismissed.
The Big Print Giveth, and the Fine Print Taketh Away
Motorsport filed a counterclaim for breach of contract, arguing that Innovate violated the Stock Purchase Agreement by bringing these claims. Innovate had agreed to release Motorsport from all claims related to the sale of shares. When granting summary judgment to Motorsport, Judge Bibas stated clearly, “Innovate violated the plain text of this release by bringing these claims against Motorsport” (Innovate v. Motorsport, 2025, p. 13). Adding insult to injury, Innovate was responsible for paying Motorsport’s attorneys’ fees and legal expenses arising from breaching their contract, as explicitly stated in the contract. Judge Bibas allowed those claims to move forward because Innovate asserted that the release was induced by fraud. However, it became evident that no fraud occurred, and he dismissed the claims.
Conclusion
“This is a securities-fraud case, but 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 v. Motorsport, 2025, p. 2). Case closed.
Expert Analysis
Helen Maher of the Maher Legal Group, a solo practitioner who has worked extensively with NASCAR through the years, offered the following analysis:
“The judge properly held that Innovate’s allegations were insufficient to substantiate fraud claims against Motorsport and its officers. Innovate alleged that 704Games misleadingly represented that its new videogame, Heat 5, would perform poorly and that the company was financially struggling. Innovate contended that these misrepresentations were made so that Motorsport could buy out the minority shareholders at a bargain price. However, the judge held that there was no evidence demonstrating that any of Motorsport’s representations were false when they were made. Indeed, the evidence showed that Motorsport believed that its financial projections were accurate at the time they were rendered. The judge similarly found that there was no evidence showing that Motorsport (1) made its projections unreasonably; (2) did not properly consider its data; or (3) relied upon improper forecasting methods.
“While Innovate might have claimed there was fraud by omission, the court held that there was no duty to correct (because Motorsport made no false statement) and no duty to update Motorsport’s representations because the claims were accurate at the time they were made.
“The summary judgment granted to Motorsport, while not unique in its legal underpinnings, is a reminder that “doom and gloom” projections are not necessarily wrong (or fraudulent) if they have a reasonable basis and are accurate at the time they are made. Here, the data indicated that games sales improved after Motorsports’ representations were made at the board meeting. And although the company stated that it was financially struggling, it was able to secure a loan, also after Motorsport’s representations.”
Stephanie Barnes is a doctoral student in Sport Management at Troy University. She is a professional swimming coach and holds two Master’s degrees: one in Sport Management from Liberty University (2024) and another in Exercise Science from Auburn University (2003). She recently presented her thesis at the 2025 COSMA Conference in Las Vegas.
References
Innovate 2, Corp. v. Motorsport Games Inc., No. 1:21-cv-165-SB, 2025 WL 804648 (D. Del. Mar. 28, 2022)
Innovate 2, Corp. v. Motorsport Games Inc., No. 1:21-cv-165-SB, 2025 WL 804648 (D. Del. Feb. 26, 2025)
Cornell University. (n.d.). Summary judgment. Legal Information Institute. https://www.law.cornell.edu/wex/summary_judgment
Kohn, Kohn & Colapinto LLP. (2025, June 13). What is securities fraud? A comprehensive overview. https://kkc.com/frequently-asked-questions/what-is-securities-fraud/#:~:text=Securities%20fraud%2C%20or%20stock%20fraud,for%20the%20perpetrator’s%20personal%20gain.
