Diamond Comic Distributors is in free fall as the company faces liquidation, a multi-party fraud lawsuit, and the collapse of a major contract with Wizards of the Coast (WotC).
Alliance Entertainment, which had agreed in January to buy Diamond Comic Distributors out of bankruptcy, has filed suit alleging it was misled about the termination of the lucrative WotC deal—worth nearly 25% of annual sales. As a result, Alliance has since canceled the deal and withdrawn from the acquisition, according to an SEC filing from the company.
Meanwhile, Diamond failed to submit required financial reports, prompting a federal court to begin converting its Chapter 11 case into full liquidation under Chapter 7.
What happened?
Alliance Alleges Fraud Over Withheld WotC Contract Termination
According to the complaint (via ICv2), Alliance alleges that Diamond and associated parties—including executives, restructuring consultants, and an investment bank—intentionally withheld information about the WotC contract ending on April 30.
Internal discussions at Wizards of the Coast reportedly show the decision to terminate was made as early as December 2024, months before Alliance was informed.
Alliance claims this concealment negatively altered the value of the acquisition and is now seeking the return of its $8.5 million deposit, along with damages and the disgorgement of fees paid to third parties involved in the sale process.
Court Moves to Liquidate Diamond After Missed Filings
The U.S. Bankruptcy Court in Baltimore has scheduled a hearing for May 27 to determine whether Diamond’s case should be officially converted to Chapter 7, which would lead to a full liquidation of its assets.
The move was triggered by Diamond’s failure to file Monthly Operating Reports—critical financial disclosures required under Chapter 11. If the conversion is approved, Diamond will likely cease operations.
What happens next?
If Diamond doesn’t file the overdue reports or no one objects, the court may convert to Chapter 7 automatically — meaning Diamond could be liquidated without a fight.
This means Alliance’s $8.5 million deposit would likely be treated as an unsecured creditor claim, placing it near the bottom of the repayment priority list. The final amount recovered would depend on how the trustee allocates remaining assets, but in most liquidation cases, unsecured creditors receive only a fraction of what’s owed, if anything at all.
If Diamond does file the required paperwork, Alliance could try to negotiate a settlement or have their claim recognized in a restructured plan.
Alliance is also pursuing fraud claims against individuals and entities not protected by the bankruptcy, such as executives, consultants, and the investment bank, potentially shifting its focus to those parties in hopes of recovering losses through separate legal action.
A negotiated settlement between the parties also remains a possibility.
Impact to the comic book market
While Diamond no longer distributes DC or Marvel Comics, if Diamond is liquidated, the impact on the comic book market could still be severe.
Diamond has long been a central distributor for comic shops, especially for indie publishers. Its collapse would disrupt the supply chain, delay shipments, and force retailers to quickly establish new relationships with alternative distributors like Lunar or Penguin Random House.
Smaller publishers who relied on Diamond exclusively may struggle to reach stores, and retailers could face increased costs, inconsistent delivery schedules, and inventory gaps—especially during key sales periods.
Comic book shops were already struggling, with reports suggesting that nearly 50% have closed in recent years (watch below)—making Diamond’s collapse feel like fuel on an already raging fire.
