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WWE stockholder lawsuit heats up over backtracking whistleblower

Did WWE "lie" to their investors over the monetary potential of their domestic TV rights negotiations last year? Confidential Witness Number 1, aka former WWE executive Brian Maddox, certainly thought so until he read the complaint he was named in and then switched sides.

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Vince McMahon needs his lawyers more than he has in two decades.
Vince McMahon needs his lawyers more than he has in two decades.
Mark A. Wallenfang/Getty Images

Here at Cageside Seats we have written a lot about the ongoing concussion litigation against WWE by former company wrestlers and their families, whilst neglecting another legal threat on the horizon: the raft of investor lawsuits filed against WWE and its company officers for securities fraud in the wake of their new domestic TV rights deal with the USA Network coming well below financial expectations. The complaints argued that WWE materially misrepresented the value of the potential deal to their stockholders, leading to WWE stock being overvalued during a period that Stephanie McMahon sold over $6 million worth of WWE stock.

In this week's Figure Four Weekly Newsletter, David Bixenspan has an excellent cover story bringing his readers up to speed on the latest developments in the ongoing legal battle between WWE and their disgruntled ex-investors. Things started heating up in January when the plaintiffs filed a consolidated amended complaint with information from a former high-ranking employee of WWE named "Confidential Witness Number 1" or "CW1" for short that backed up their claims, including arguing that:

  • WWE officers knew they wouldn't be able to get a significant rights fee hike from USA due to low ad rates ("$15,000 per spot");
  • WWE's own internal research studies demonstrating that their actual fan base was a fraction of what the defendants represented to the public ("at the very most, WWE had 4-6 million total fans");
  • Actual social media followers of WWE accounts are counted multiple times to achieve the huge totals the company loves to tout, in order to present a larger, yet inaccurate, picture of their fanbase;
  • Michelle Wilson had asked the witness to present false viewership data to potential sponsors, i.e., lie to them, an act he had refused to do.
  • WWE's reaction was to file a memorandum of law in support of their motion to dismiss the updated complaint in March, which included an affidavit of Brian Maddox, the Vice President of their global digital advertising sales team from December 2010 to January 2014, who claimed that he believed he was CW1, had not consented to the use of any of his purported statements in the complaint, and then went on to deny all those statements:

    "I am submitting this affidavit because the statements attributed to me in the Amended Complaint are not accurate and do not accurately reflect what I said to plaintiffs' counsel. Contrary to the Amended Complaint, I am not aware of any instance in which the Company or anyone else made inaccurate or intentionally misleading public statements about the size of WWE's fan base, the number of its social media followers, the potential outcome of its negotiations of television contracts, the launch and ultimate success of the WWE network, the potential impact of those on its future financial results, or anything else referenced in the Amended Complaint."

    According to Bixenspan, the plaintiffs have fought back with a strongly worded opposition to WWE's motion to dismiss, arguing that Maddox's affidavit should come under scrutiny because he could have been coerced by the company to rescind his original statements:

    "If the Court reviews the Affidavit at face value and in its appropriate context, it is the preparation of the Affidavit, not the Amended Complaint, that should come under scrutiny. Indeed, should the Court come to the logical conclusion that Mr. Maddox was pressured by Defendants and their counsel to submit the Affidavit, especially in light of the fact that Mr. Maddox provided his confidentiality agreement with WWE to KSF [Kahn Swick & Foti, the plaintiffs' attorneys] because he feared reprisal from the Company, and that the Affidavit does not represent a truthful depiction of his correspondence with Lead Counsel, the allegations attributable to Maddox in the Amended Complaint should be deemed more compelling and foster an even stronger inference of scienter [a legal term referring to knowledge of wrongdoing]."

    We'll update you as this story progresses further, Cagesiders, as it seems to be the stiffest test of the cases currently facing WWE's overworked legal team.

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