Disney, a powerhouse in the entertainment industry, along with its current CEO Bob Iger, previous CEO Bob Chapek, and several other former executives, have been named in a fresh lawsuit. The controversy surrounds purported deceptive accounting methods linked to how the company accounted for losses in its streaming service.
Disney facing another lawsuit from investors
Moreover, Stourbridge Investments lodged the complaint on Tuesday, alleging that Disney and its top-tier executives provided statements that were “materially misleading.”
Moreover, the complaint stipulates, “Plaintiff has initiated this action on behalf of Disney, the nominal defendant, against certain company executives and board members. The crux of the suit aims to address the supposed violations of the Exchange Act and claims of fiduciary duty breaches. These are tied to supposedly inaccurate or misleading statements and/or significant omissions in public documents and proxy statements from December 10, 2020, onwards.” The full details of the lawsuit can be found on Deadline.
The suit further elaborates, “In an effort to mask these detrimental facts, the defendants allegedly employed a strategy to downplay the scale of losses incurred by Disney+. This was supposedly done by manipulating figures to make Disney+’s growth and 2024 targets seem both sustainable and achievable. Central to this strategy was the DMED, which was allegedly used to incorrectly transfer costs away from Disney+ and onto older platforms.”
Why is Bob Chapek under scrutiny?
Chapek’s tenure at the helm of Disney has not been without its share of legal troubles. Earlier in the year, shareholders initiated a lawsuit against Chapek and Kareem Daniels, his then deputy. This lawsuit was centered around claims of misleading statements about Disney+’s health.
The initial lawsuit noted, “Throughout the stipulated period, defendants allegedly disseminated misleading statements or failed to disclose vital information. Key among the allegations was that Disney+ was grappling with declining subscriber growth, mounting losses, and escalating costs. To obscure these issues, Disney executives are said to have launched certain content first on Disney’s established channels before moving them to Disney+. This was purportedly an attempt to inappropriately shift costs away from Disney+.”
Moreover, the suit further added, “Rather than making distribution choices based on consumer preferences or behaviors or aiming to maximize content audience, it’s alleged that decisions were made to conceal the real costs tied to bolstering Disney+’s content library. Moreover, contrary to their projections, Disney was allegedly not in a position to meet its reduced 2024 Disney+ subscriber and profitability targets.”
Interestingly, Chapek’s leadership at Disney began when he succeeded Iger during the pandemic’s peak in 2020. However, in an unexpected turn of events in 2022, Iger resumed his position as the CEO.
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