Suit claims company hid retailer returns.

DreamWorks Animation SKG Inc. was hit Thursday (June 2) with its first shareholder lawsuit since going public: a proposed class action accusing company executives of misrepresenting DVD sales of "Shrek 2."

The lawsuit filed in federal court in Los Angeles says DreamWorks chief executive Jeffrey Katzenberg and chairman Roger Enrico failed to disclose in the first quarter that sales of "Shrek 2" DVDs were declining far more than expected.

The suit says DreamWorks continued to ship the title "far in excess of the actual demand" and hid the fact that retailers were returning "massive amounts" of unsold DVDs.

DreamWorks Animation spokesman Bob Feldman said the company had not seen the lawsuit but called the claims baseless. "We believe the suit is completely without merit, and we intend to defend ourselves vigorously," he said.

DreamWorks stunned investors May 10 by reporting that first-quarter DVD sales for "Shrek 2" fell far short of the company's earlier projections and that the Glendale-based studio would realize no revenue from the title in the quarter.

-- Reuters