The Walt Disney Company Shareholders Sue The Walt Disney Company, Former CEO Bob Chapek, Current CFO Christine McCarthy, And Former DMED Executive Kareem McDaniel

LOS ANGELES, CALIFORNIA - JUNE 23: (L-R) Christine McCarthy, CFO of The Walt Disney Company, Bob Chapek, Chief Executive Officer of Disney, Kareem Daniel, Chairman of Disney Media and Entertainment Distribution and Louis D'Esposito attend the Thor: Love and Thunder World Premiere at the El Capitan Theatre in [Hollywood], California on June 23, 2022. (Photo by Charley Gallay/Getty Images for Disney)

A new lawsuit was filed in the United States’ Central District Court of California by Local 272 Labor-Management Pension Fund against The Walt Disney Company, Former CEO Bob Chapek, current CFO Christine McCarthy, and former Chairman of the Disney Media and Entertainment Division Kareem Daniel.

Bob Chapek at The Walt Disney Company's Investor Day 2020

Bob Chapek at The Walt Disney Company’s Investor Day 2020

The lawsuit alleges the defendants “were involved in drafting, producing, reviewing and/or disseminating the false and misleading statements and information alleged herein, and were aware of, or recklessly disregarded, the false and misleading statements being issued regarding the Company, and approved or ratified these statements, in violation of the federal securities laws.”

It goes on to specifically accuse the defendants of being “provided with copies of the documents alleged herein to be false and misleading before or shortly after their issuance, participated in conference calls with investors during which false and misleading statements were made, and had the ability and opportunity to prevent their issuance or cause them to be corrected. Accordingly each Individual Defendant is responsible for the accuracy of the public statements detailed therein and is, therefore, primarily liable for the representations contained therein.”

Emmy DeOliveira as Kate Weatherall, Seth B. Carr as George ‘Sticky’ Washington, Marta Kessler as Constance Contraire, and Mystic Inscho as Reynie Muldoon in The Mysterious Benedict Society “A Gold Bar in Fort Knox” (Disney/Tina Thorpe)

RELATED: Disney Partners With Equalpride To Make New Pro-Sodomy Content To “Create Systematic And Meaningful Change”

The suit specifically charges the The Walt Disney Company and the other defendants of “materially false and misleading statements and omissions issued during the class period” that began on December 10, 2020.

It goes on to allege that “defendants acted with scienter in that defendants knew, or recklessly disregarded, that the public documents and statements they issued and disseminated to the investing public in the name of the Company, or in their own name, during the Class Period were materially false and misleading.”

“Defendants knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements and documents as primary violations of the federal securities laws,” it asserts. “Defendants, by virtue of their receipt of information reflecting the true facts regarding Disney, and their control over and/or receipt and/or modification of Disney’s materially false and misleading statements, were active and culpable participants in the fraudulent scheme alleged herein.”

It goes on to summarize, “In short, defendants’ fraudulent cost-shifting scheme was designed and overseen by defendants Chapek and Daniel, and permitted and furthered by defendant McCarthy, each of whom is liable as a result of the inherently deceptive nature of the scheme.”

LOS ANGELES, CALIFORNIA – MARCH 22: (L-R) Alan Bergman, Disney Studios Content Chairman, Jeremy Slater, Writer, Kevin Feige, Executive Producer and Marvel Studios President and Marvel Chief Creative Officer, Grant Curtis, Executive Producer, Mohamed Diab, Director, Victoria Alonso, Executive Producer and Marvel Studios Executive VP of Production, , Díana Bermudez, Sofia Danu, Shaun Scott, May Calamawy, Karim El Hakim, Oscar Isaac, Ann Akinjirin, Ethan Hawke, David Ganly, Fernanda Andrade, Antonia Salib, Rey Lucas, Justin Benson, Director, Brad Winderbaum, Executive Producer, Aaron Moorhead, Director and Bob Chapek, The Walt Disney Company CEO attend the Moon Knight Los Angeles Special Launch Event at the El Capitan Theatre in Hollywood, California on March 22, 2022. (Photo by Jesse Grant/Getty Images for Disney)

It goes on to allege that The Walt Disney Company, Chapek, Daniels, and McCarthy violated §10(b) of the Exchange Act and SEC Rule 10b-5  explaining that they “employed devices, schemes, and artifices to defraud; made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engaged in acts, practices, and a course of business that operated as a fraud or deceit upon plaintiff and others similarly situated in connection with their purchases of Disney common stock during the Class Period.”

It also charged The Walt Disney Company, Chapek, and McCarthy with a violation of of §20(a) of the Exchange Act explaining, “Defendants Chapek and McCarthy acted as controlling persons of the Company within the meaning of §20(a) of the Exchange Act. By reason of their positions with the Company and/or ownership of Disney stock, these Individual Defendants had the power and authority to cause the Company to engage in the wrongful conduct complained of herein. The Company controlled the Individual Defendants and all of its employees. By reason of such conduct, the defendants named herein are liable pursuant to §20(a) of the Exchange Act.”

DOOGIE KAMEALOHA, M.D – Disney’s “Doogie Kamealoha, M.D” stars Peyton Elizabeth Lee as Lahela “Doogie” Kamealoha, Kathleen Rose Perkins as Dr. Clara Hannon, Mapuana Makia as Noelani, Jeffrey Bowyer-Chapman as Charles, and Ronny Chieng as Dr. Lee. (Disney/Justin Stephens)

RELATED: After Extremely Poor Viewership Ratings, Disney To Push First Two Episodes Of ‘Andor’ To ABC, FX, Hulu, And Freeform

As far as the specifics of the fraudulent scheme, the suit states, “During the Class Period, defendants repeatedly misled investors about the success of the Disney+ platform by concealing the true costs of the platform, concealing the expense and difficulty of maintaining robust Disney+ subscriber growth, and claiming that the platform was on track to achieve profitability and 230-260 million paid global subscribers by the end of fiscal year 2024.”

It goes on to assert, “In truth, during the Class Period, Disney+ was never on track to achieve the 2024 profitability and subscriber figures provided to investors and such estimates lacked a reasonable basis in fact. To conceal these adverse facts, defendants engaged in a fraudulent scheme designed to hide the extent of Disney+ losses and to make the growth trajectory of Disney+ subscribers appear sustainable and 2024 Disney+ targets appear achievable when they were not. Specifically, defendants used the newly created DMED to inappropriately shift costs out of the Disney+ platform and onto legacy platforms.”

It alleges, “As part of a scheme to make Disney+’s financial performance appear more successful than it was, defendants aired certain shows that were supposed to be Disney+ originals – such as the mystery show The Mysterious Benedict Society and the medical drama Doogie Kameāloha, M.D. – first on legacy television networks such as the Disney Channel. By doing so, a significant portion of the marketing and production costs of the shows were shifted away from Disney+ and on to the legacy platforms.”

Mon Mothma (Genevieve O’Reilly) in Lucasfilm’s ANDOR, exclusively on Disney+. ©2022 Lucasfilm Ltd. & TM. All Rights Reserved.

The suit is seeking “compensatory damages in favor of plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon; Awarding plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and Awarding such equitable, injunctive, or other relief as deemed appropriate by the Court.”

A Walt Disney spokesman responded to the complaint telling Deadline, “We are aware of the complaint and intend to defend vigorously against it in court”

LOS ANGELES, CALIFORNIA – JUNE 23: (L-R) Christine McCarthy, CFO of The Walt Disney Company, Kareem Daniel, Chairman of Disney Media and Entertainment Distribution and Louis D’Esposito attend the Thor: Love and Thunder World Premiere at the El Capitan Theatre in [Hollywood], California on June 23, 2022. (Photo by Charley Gallay/Getty Images for Disney)

RELATED: The Walt Disney Company CEO Bob Iger On Disney+: “We Realized That We Made A Lot Of Content That Is Not Necessarily Driving Sub Growth”

YouTuber Valliant Renegade alongside legal analyst Andrew Esquire shared their thoughts on the lawsuit.

Esquire said, “Right now Disney has massive, massive incentive to settle. This is absolutely intended to receive a settlement or to receive at least a pay out. From a Plaintiff’s standpoint, from a legal standpoint if you get what you are asking for, get a fraction what you’re asking for, you’re typically happy. You’re typically all right.”

While he notes the lawsuit is looking for a settlement, he also looked at the suit’s merit saying, “Does it have merit? Yes, it has enough merit not to be outright dismissed. And that’s the key here. When you want a settlement, when you’re aiming for a settlement, you want enough meat on the bone that you’re not going to get blown out by a motion to dismiss.”

“This one has enough meat on the bone to be able to escape that,” he reiterates. “And then you go into discovery and then summary judgment. And that’s typically the period at which you see a settlement happen. So absolutely 100% I think this angled for that.”

DOOGIE KAMEALOHA, M.D – Disney’s “Doogie Kamealoha, M.D” stars Peyton Elizabeth Lee as Lahela “Doogie” Kamealoha, Kathleen Rose Perkins as Dr. Clara Hannon, Jason Scott Lee as Benny Kamealoha, Matthew Sato as Kai Kamealoha, Wes Tian as Brian Patrick Kamealoha, Emma Meisel as Steph, and Alex Aiono as Walter. (Disney/Justin Stephens)

He went on to explain, “Because, if you look at it, yes, it’s got some legitimate claims that could have merit if there’s more discovered behind them. If they looked into Bob Chapek’s statements, if they looked into the statements of Walt Disney regarding what they were going to do regarding Disney+.

“And, also, more I think more lethally for them is this cooking of the books narrative…is how they’re massaging the numbers? How are they dealing with those line items? Were they taking advertising and marketing numbers, which is something alleged in the complaint, and kind of taking those costs that would fall on Disney+ if it was a separate line item and shifting it over to legacy, right. Shifting it over to elsewhere.”

He did note, “If it went to a trial on the merits that might be much tougher to prove because you’ve actually got to prove fraud. You’ve got to prove some level of intention, some potential knowledge or scienter, which they talk about in the complaint, and that’s often a difficult thing to prove at trial. But is it enough for summary judgment? Absolutely 100%.”

Bob Chapek, Alan Bergman, Angelina Jolie and Alan Horn pose at the Premiere of Marvel Studios’ Eternals in Hollywood, CA on Monday, October 18, 2021
(Photo: Alex J. Berliner/ABImages)

What do you make of this shareholder lawsuit against The Walt Disney Company?

NEXT: Legal Analyst Claims The Walt Disney Company CEO Bob Iger’s Recent Comments Have “Massive Implications” That Could Include “Criminal Penalties, Billions Of Dollars At Stake”

Share: 
Mentioned This Article:

More About: