NEW YORK (Legal Newsline) – The shareholder lawsuit against World Wrestling Entertainment over a failed partnership with Saudi Arabia raises eyebrows about Vince McMahon’s sale of 10% of his stock, a federal judge has ruled.
The WWE called arguments blaming it for a stock drop “scattershot,” but New York federal judge Jed Rakoff ruled Aug. 6 against its motion to dismiss.
“Ultimately… none of defendants’ numerous arguments succeed,” Rakoff wrote. “Basically, this is because the complaint, while not a model of clarity, adequately alleges an overall claim of securities fraud that is not only plausible, but also complies with the relevant heightened pleading requirements applicable to this kind of action.”
The litigation is led by a Kansas City pension group and the law firm Labaton Sucharow. The WWE called the case “fraud-by-hindsight” and a “strained attempt” to place blame for the stock drop.
Multiple cases were filed earlier this year against the WWE. They allege WWE officers failed to tell investors about difficulties with negotiations with Saudi Arabia and the Orbit Showcase Network (OSN).
The WWE called the Saudi-controlled direct broadcast satellite provider serving the Middle East and North Africa regions a key part of its financial future. However, the suits allege the Saudi deals were in jeopardy when company officials joined fans in criticizing that country’s human rights record.
Things came to a head with the murder of journalist Jamal Khashoggi on Oct. 2, 2018, believed to be directed by the Saudi government. A decision to hold a WWE live event in Saudi Arabia a month later was widely panned. This upset the Saudis, the complaint said.
WWE revealed on Oct. 31, 2019, that the media rights deal had been delayed and the Saudi government owed the company tens of millions of dollars. Several wrestlers were stranded by the Saudis when WWE cut the live broadcasting feed of an event in the country.
When the WWE revealed it failed to secure the Saudi broadcasting deal, stocks dropped on Feb. 6 to a low of $40.24 per share.
Senior executives sold off stock in what the complaints alleged was insider trading. Vince McMahon sold more than 3.2 million shares for $261 million on March 27, 2019.
The WWE says despite the deal falling through, its financial performance ended up in the range of where it predicted it would be.
Rakoff’s 32-page decision will allow the case to progress into discovery. He wrote plaintiffs have adequately alleged McMahon’s sale of shares constitutes insider trading.
“The (complaint) alleges that McMahon sold 3,204,427 shares of WWE stock during the class period for proceeds of more than $261 million, a very significant sum,” Rakoff wrote.
“Although this constituted only 10% of his shares, this sale was unusual in light of McMahon’s past trading practices. McMahon’s March 27, 2019, sale was also suspiciously timed, as it occurred only a few days before the OSN Agreement ended and a month before the issuance of lower-than-expected income projections for the second quarter of 2019, which resulted in a drop in WWE’s stock price.”