Image from Sky Sports
Yesterday, a WWE stockholder filed a derivative lawsuit on behalf of the WWE and its shareholders against CEO Vince McMahon and former Co-VPs George Barrios and Michelle Wilson. Barrios and Wilson were terminated from employment with the WWE in January 2020.
The plaintiff alleges that the defendants breached their fiduciary duty to the company and its stockholders by misappropriating information, specifically related to the WWE’s contract with Orbit Showtime Network (“OSN”), a Middle Eastern broadcast provider.
The complaint asserts that WWE’s relationship with OSN had become “increasingly shaky,” ultimately resulting in OSN canceling its contract with the WWE. In late 2018, OSN had approached the WWE regarding the early termination of the parties’ agreements and on or about December 18, 2018, OSN and WWE entered into a settlement agreement terminating their relationship as of March 31, 2019.
However, as the plaintiff alleges, prior to the time that those relevant material facts were properly publicly disclosed, WWE corporate insiders acted to sell over $280 million of WWE common stock based upon their “superior knowledge of those material, non-public facts.”
These facts were also the subject of a Securities Class Action, which was filed in federal court in NY. There, after denying the WWE's motion to dismiss on August 6, 2020, the judge later approved a settlement of the claims for $39 million.
Here, the plaintiff had demanded that the company take action against the defendants to recover from misleading statements and profits obtained while trading off of misappropriated information.
Such profit refers to trading activity from McMahon and his counterparts in 2019:
3/27/19: McMahon sells $261M worth of $WWE at $81/share
3/31/19: OSN and WWE relationship terminates
Trading activity provided by OpenInsider
The plaintiff brought this derivative lawsuit on behalf of the WWE after its board of directors ignored his 10/1/20 demand.
A derivative lawsuit is one brought by a shareholder(s) of a company, on behalf of the company, when the company has refused to bring suit itself. Companies make decisions through their officers and directors. Therefore, when an officer or director has committed a wrongdoing that directly hurts the company and its shareholders as a result, shareholders have the right to “demand” that the company bring suit.
As this lawsuit directly names McMahon, it could have significant ramifications for the future of the WWE.