WWE Must Face Investors’ Suit Over Saudi Relationship

World Wrestling Entertainment Inc. failed to convince a New York federal judge Thursday to throw out a proposed class action brought by investors who accused the company of inflating its stock price by concealing the decline of its successful business relationship with the government of Saudi Arabia.

The action, in which the Firefighters’ Pension System of the City of Kansas City (Mo.) Trust was designated lead plaintiff in May, includes allegations that the WWE and its top executives kept the deterioration of its business relationship with Saudi Arabia a secret, resulting in a significant stock drop. Prior to that, WWE enjoyed fruitful negotiations with the nation, the lawsuit claims.

Defendants, including WWE’s CEO Vincent K. McMahon, sought to dismiss the consolidated complaint June 26, calling the securities fraud suit “an impermissible fraud-by-hindsight case” focused on a business arrangement “that ultimately did not come to fruition” despite WWE’s best efforts.

But “none of defendants’ numerous arguments” to show that the consolidated amended complaint failed to state a claim were persuasive, according to Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York.

“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,” Rakoff wrote.

The complaint alleges that, between Feb. 7, 2019, and Feb. 5, 2020, WWE made misrepresentations regarding the status of media rights agreements in the Middle East and North Africa region. In 2014, WWE signed a five-year media rights deal with the Orbit Showcase Network, according to the lawsuit.

The plaintiffs also point to WWE’s 2018 announcement that it signed a 10-year deal with the Saudi General Sports Authority for large wrestling events as evidence that investor attention was on the international markets. Investors were expecting the OSN agreement to be renewed, but WWE allegedly already knew it would not be, plaintiffs say.

The court rejected WWE’s motion to dismiss the would-be class action in its entirety.

“While defendants have trotted out a virtual herd of objections” to the complaint, “on close inspection none is a winner,” the judge wrote, finding that it states both a Securities Exchange Act Rule 10b-5 and a Section 20(a) claim against all defendants.

Labaton Sucharow LLP is lead counsel. Defendants are represented by K&L Gates LLP.

The case is City of Warren Police & Fire Ret. Sys. v. World Wrestling Entm’t Inc., S.D.N.Y., No. 1:20-cv-02031, 8/6/20.