WWE is the subject of yet another lawsuit from its own shareholders alleging the company made false statements about its financial prospects and executives sold stock for inflated prices ahead of known poor financial reports that would drive down costs and amidst problems with the Saudi Arabian government, which WWE had touted as key to its financial success. The lawsuit was filed by Ryan Merholz and Melvyn Klein against WWE, Vince McMahon, Stephanie McMahon, Paul Levesque, Frank Riddick III, Stuart Goldfarb, Laureen Ong, Robyn Peterson, Man Jit Singh, Jeffery Speed, Alan Wexler, and George Barrios, and Heel by Nature obtained a copy and posted it on their website. The 44-page lawsuit reads:
This is a shareholder derivative action brought in the right, and for the benefit, of WWE against certain of its officers and directors seeking to remedy the Individual Defendants' (defined below) breach of fiduciary duties, waste of corporate assets, unjust enrichment, and violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") that occurred between February 7, 2019 through the present (the "Relevant Period ") and have caused substantial harm to the Company.
Amongst the claims made by the lawsuit is that WWE entered into its controversial Saudi Arabia agreement, which caused a backlash amongst the company's own fans, some of its wrestlers, and the media in general, which has negatively covered WWE's involvement with the Saudi regime. It also cites tensions between the Saudis and WWE that ultimately led to an incident last year where talent were effectively held hostage in the country after a dispute over live broadcast rights. Amidst all of this, the suit claims WWE executives sold stock at inflated prices ahead of disappointing financial reports, which caused share prices to fall drastically.
As a result of these disclosures, the price of WWE stock dropped from a high ofmore than $100 per share to as low as $40.24 per share on February 6, 2020, representing a 60%share price decline. However, the Company's most senior executives and directors took advantageof WWE's inflated stock price to sell millions of dollars' worth of their own WWE shares duringthis time period. In a single stock sale on March 27, 2019, WWE's Chief Executive Officer ("CEO") and Chairman of the Board, Defendant V. McMahon, sold more than 3.2 million WWEshares for over $261 million in proceeds. This sale occurred when there were only a few days leftin the Company's 2019 first quarter which insiders knew was experiencing poor financial performance and despite growing behind-the-scenes problems with the Saudis.
The sale of 3.2 million shares by Vince McMahon was money McMahon used to launch the XFL, which recently declared bankruptcy and is the target of a lawsuit of its own by ex-commissioner Oliver Luck. In the XFL bankruptcy filing, it was revealed that WWE owned a percentage of XFL shares despite denials. WWE resources being used for the XFL were the subject of another lawsuit by WWE shareholders last year that was later dropped.
Bleeding Cool reached out to WWE for comment on the lawsuit and will update you if we hear back.