One of Canada’s biggest gaming and esports media companies is embroiled in a legal battle against a former executive, whom the firm has accused of orchestrating a “calculated coup” against the company’s CEO. 

In legal documents filed late last year with the Ontario Superior Court of Justice, TSX-traded Enthusiast Gaming claims Thamba Tharmalingam—who served as the Toronto-based company’s chief operating officer from August 2020 to August 2022—rallied senior management to support a bid to overthrow Adrian Montgomery in an attempt to install himself as CEO.

Tharmalingam, whom the company subsequently fired, denies the allegations and claims he was terminated without cause. He’s seeking $5.35 million in damages. Enthusiast wants Tharmalingam’s claims dismissed, and payment for damages associated with breaches it alleges of confidentiality and of his fiduciary duty.

None of the claims from either side have been proven in court. Enthusiast Gaming declined to answer The Logic’s questions about the legal dispute and lawyers for Tharmalingam did not respond to a request for comment.  

The legal battle sheds new light on a 2022 campaign that saw Enthusiast’s largest shareholder, New York-based investment firm Greywood Investments, try to oust Montgomery and a majority of Enthusiast’s board over what it claimed were “significant issues” with the firm’s culture and management. 

As part of the campaign, Greywood sent a letter—signed by four Enthusiast vice-presidents—to the company’s board requesting the changes. In July 2022, after the letter was leaked to The Washington Post, the board agreed to replace Montgomery. The company has been seeking a new CEO ever since. In the meantime, Montgomery has remained at the helm. 

Enthusiast, which in 2019 merged with Aquilini GameCo—a subsidiary of a holding company for B.C.’s billionaire Aquilini family, which among other things owns the NHL’s Vancouver Canucks—is vying to become the world’s largest platform connecting gaming and esports fans. It owns a slate of esports teams that compete in high-stakes tournaments around the world, as well as teams of content creators on YouTube, Twitch and TikTok and operates about 50 websites that host video-gaming related content. 

The company generated $50.6 million in revenue in its latest quarter, ended Sept. 30, 2022, up 17 per cent from a year earlier. However, its net losses tripled from the same period the previous year, to $37.1 million, and its stock has suffered amid macroeconomic headwinds, Greywood’s campaign for new leadership at the company and what Greywood claimed were internal governance issues. 

In filings with the court, Enthusiast alleges Montgomery introduced Tharmalingam to Greywood manager Sasha Szabo in the summer of 2021, in part to explore partnerships between Enthusiast and other Greywood portfolio companies. 

Instead, Tharmalingam “set about working with Greywood on an activist campaign,” Enthusiast claims. “Through that campaign … the plaintiff undermined Enthusiast’s management group, seeking to promote himself to the position of CEO and disregarding the fact that he was actively harming Enthusiast.” 

In court documents, Enthusiast claims Tharmalingam assembled a group of his direct reports to write the letter Greywood sent calling for the CEO’s replacement. The company claims Tharmalingam then sent the board a separate statement supporting the Greywood letter, “and attempted to convince the board to appoint him to the CEO position.” 

The Greywood letter accused Montgomery and the directors of squandering the company’s potential in the gaming and Web3 space. It raised concerns that board members did not have enough economic interest in Enthusiast, noting that directors collectively owned just 5.7 per cent of the company, or adequate experience in the industry. That inexperience, Greywood said, resulted in the board not doing proper due diligence on deals Montgomery brought forward. 

Greywood also accused Montgomery of driving talent and potential recruits away from the company by creating a “culture of divisiveness” in which he co-opted “staff’s achievements while either dispensing blame on others for his failures or forcing management to execute his undesirable actions to protect his own reputation.”

The letter argued that Enthusiast needed to replace the CEO and most of its directors in order to position the company as a “global leader,” focusing on its “unique strengths in data science, technology and development.” 

Greywood claimed that, under the right leadership, Enthusiast could achieve a market value of US$4 billion to US$5 billion, compared to the US$250 to US$300 million it was worth at the time. 

In its counterclaim against Tharmalingam, Enthusiast called the complaints in Greywood’s letter “unfounded,” including allegations that Montgomery’s performance threatened shareholder value. 

It claimed, rather, that the activist campaign had itself compromised Enthusiast’s financial stability by weakening its stock price and putting at risk financing from its bank. 

Enthusiast’s share price dropped 3.6 per cent on June 29, the day The Washington Post published its article about Greywood’s campaign against Montgomery and the board. The stock has since lost about 70 per cent of its value.

As for Tharmalingam, the company’s counterclaim alleges he “was fixated on becoming CEO of Enthusiast, despite the potential for significant harm to Enthusiast,” and violated his fiduciary responsibility to the company, as well as confidentiality obligations and his duty of loyalty. 

The company also accused Tharmalingam of shielding himself from possible blowback from the alleged coup attempt by renegotiating his employment contract to include “extraordinarily favourable termination and change of control provisions.” The then-COO pressured Enthusiast to renegotiate his yearly salary. Before he was fired, Tharmalingam was earning $429,000 and was guaranteed a discretionary annual bonus of at least 50 per cent of his base pay, it claimed. 

In a response to the company’s counterclaim, Tharmalingam denied any involvement with the activist campaign against Montgomery and rejected allegations he renegotiated his contract in bad faith. He maintained he was wrongfully dismissed and that his employment contract entitled him to a lump sum payment equal to 30 months of his base pay, a prorated bonus based on 90 per cent of his annual salary, plus 15 months of benefits. 

“The plaintiff never wanted the CEO position,” reads his reply, adding that he “did not take any steps to encourage the removal of Adrian Montgomery as CEO.” 

“Only the defendant, through its board of directors, had authority to remove Adrian Montgomery from his position as CEO,” it states. 

Although Enthusiast rejected the claims in Greywood’s letter, after it leaked to the media in July 2022 the company’s board acquiesced to the investor’s requests for a leadership shakeup. 

Along with agreeing to replace Montgomery, Enthusiast named two Greywood nominees—David Goldhill and Janny Lee—to the board. Relay Ventures managing partner John Albright moved from lead director to chair of the board (Relay is an investor in The Logic), and Francesco Aquilini, managing director of his family’s holding company, did not seek re-election as chair of the board last year. 

In November the company announced it had retained a U.S. recruitment firm to help in its search for a new CEO, which is now in its eighth month. Montgomery himself—who’s serving as interim CEO—said “the search for a new CEO continues and remains a top priority.”