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As if the possibility of shifting from a Chapter 11 to Chapter 7 bankruptcy status (and therefore inducing the possibility of liquidating the company) wasn’t enough to worry about, the one-time comics and gaming distribution monopoly Diamond Comic Distributors has been hit by a new lawsuit by one-time potential buyer Alliance Entertainment, over whether or not Diamond misrepresented its current relationship with one of its primary vendors — and, in doing so, overinflated the company’s value significantly.

The April 29 filing to the US Bankruptcy Court for the District of Maryland claims that Diamond and associated parties “fraudulently misrepresented the status of the Debtors’ relationship with Wizards of the West Coast LLC […] the Debtors’ largest vendor accounting for approximately 25% of the Debtors’ Alliance Gaming Business revenue, as part of an intentional scheme to induce Plaintiff to purchase the Debtors’ assets for tens of millions more than the true valuation of those assets.”

How much money are we talking here? According to Alliance, Wizards of the Coast accounts for $39.8 million of Diamond's annual revenue.

For those wondering, yes, that's the Hasbro subsidiary Wizards of the Coast that makes Dungeons & Dragons and Magic: The Gathering. That's why it's worth a quarter of Diamond's gaming revenue; it's a very big deal. (Why the lawsuit calls the company "Wizards of the West Coast LLC" is a mystery that might simply be a mistake; elsewhere in the suit, it uses the right name and abbreviation, WOTC, and it's clearly Wizards of the Coast by the scale of revenue being discussed. Wizards has never gone by the name "Wizards of the West Coast," so Occam's razor suggests this might simply be a mistake.) 

The alleged fraud at the center of the Diamond Comics Distribution sale

Specifically, the Alliance lawsuit claims, Diamond “repeatedly and intentionally” communicated that Diamond’s relationship with Wizards of the Coast was a strong and ongoing one, despite WotC having communicated to Diamond that it would not be renewing an ongoing distribution contract with the company beyond short-term extensions that were still in flux; In effect, this would reduce Diamond’s gaming business by approximately 25% according to Alliance. The lawsuit alleges that Diamond was aware of Wizards' long-term plans in December 2024, but withheld that information from any potential buyer… such as Alliance Entertainment, which only discovered Wizards’ intention after the court approved its purchase of Diamond in early April 2025.

This discovery is why Alliance terminated the purchase agreement on April 24, Alliance's lawsuit explains.

Diamond's contract with Wizards of the Coast ended December 31, 2024 according to the lawsuit, although the companies extended the agreement through March 31, 2025 as part of a short-term amendment. That extension was then itself extended in March to run through April 30, 2025. The timing of this second extension is notable; per the lawsuit, Diamond only signed the new agreement on March 12, and Wizards of the Coast on April 1... even though the auction for Diamond's assets required bids to be submitted by March 19. In effect, potential buyers were bidding based on business deals that were not complete, unknown to them. 

The lawsuit claims that Diamond and associated parties — the lawsuit also names financial management companies Raymond James & Associates and Getzler Henrich & Associates LLC, as well as Robert Gorin, Charlie Tyson, and Dan Hirsch, who were hired to manage the restructure of Diamond under Chapter 11 bankruptcy — defrauded Alliance by misrepresenting the relationship between Diamond and Wizards of the Coast, and as a result, misrepresented the value of Diamond’s business as a whole.

Such an act, the lawsuit alleges, wasn't simply dishonest and misleading in regards to the ultimate value of Diamond's assets; it also cost Alliance millions of dollars in fees as it prepared to purchase a company they believed was worth far more money… including a deposit of $8.5 million that, the lawsuit claims, Diamond refuses to return despite being unable to give a reason not to. 

This is the second lawsuit Alliance Entertainment has filed against Diamond as a result of its now-abandoned attempt to purchase the company. The first, since dropped, came when Diamond asked the court to ignore Alliance’s highest bid for the company’s assets in favor of its preferred buyer.

Alliance is asking for damages to be awarded for fraud, breach of good faith and fair dealing, and the cost of expenses, all of which it asks to be determined at trial. Also at stake, the $8.5 million deposit, which it seeks to recoup, as well as unspecified "damages". Given Diamond’s already precarious financial position — and the fact that it has already been failing to file financial records since filing for bankruptcy — it’s unclear whether this will push the company further towards chapter 7 liquidation, and the end of Diamond and its related businesses altogether.

The court has yet to respond to Alliance’s new filing. A hearing regarding Diamond's bankruptcy status and a potential change to Chapter 7 is scheduled for May 27.

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