WEBTOON Entertainment Denies IPO Misrepresentation Claims in U.S. Court Filing

By mintory

WEBTOON Entertainment Faces Shareholder Lawsuit Over IPO Disclosures

WEBTOON Entertainment is embroiled in a legal battle following allegations of misleading investors during its initial public offering (IPO) on the Nasdaq stock exchange. A shareholder class-action lawsuit, filed in September 2024, claims that the company misrepresented its business conditions in the registration statement submitted to the U.S. Securities and Exchange Commission (SEC). WEBTOON Entertainment has formally denied these allegations, marking the beginning of a substantive legal phase.

Company Denies Misleading Information

In a court filing submitted on January 9 to the U.S. District Court for the Central District of California, WEBTOON Entertainment refuted all claims of false or misleading information in its IPO registration statement. The company stated that it "denies all allegations contained in the complaint," except for points explicitly acknowledged. This response represents WEBTOON Entertainment's first official defense against the lawsuit.

Allegations of Overly Optimistic Projections

The plaintiffs in the case argue that WEBTOON Entertainment violated U.S. securities laws by presenting overly optimistic growth projections to investors. They further allege that the company failed to adequately disclose a decline in monthly active users (MAU) prior to the IPO. These claims form the core of the lawsuit and will be a focal point of the upcoming legal proceedings.

Underwriters Support WEBTOON's Position

The lawsuit also names nine IPO underwriters, including prominent financial institutions such as JPMorgan Chase and Goldman Sachs. These underwriters have submitted separate filings supporting WEBTOON Entertainment's position, asserting that the IPO disclosures were lawful and not misleading. Their involvement highlights the significance of the case and the potential implications for the financial industry.

Substantive Phase Focused on Factual Disputes

With the submission of these answers, the case has now entered a substantive phase. This stage will focus on resolving factual disputes and determining liability. The court will examine evidence presented by both sides to determine whether WEBTOON Entertainment made false or misleading statements in its IPO registration statement.

Share Price Decline Following IPO

The lawsuit was filed after WEBTOON Entertainment's share price experienced a significant decline following its June 2024 Nasdaq listing. The share price fell to the low-US$10 range, below its US$21 IPO price. This decline triggered investor concerns and ultimately led to the filing of the shareholder class-action lawsuit.

Key Issues: MAU and Currency Risks

Several key issues are expected to dominate the upcoming legal proceedings. One critical question is whether a declining MAU trend existed at the time of the IPO. The plaintiffs argue that WEBTOON Entertainment failed to adequately disclose this trend, while the company maintains that its disclosures were accurate and complete. Another key issue is whether foreign exchange risks related to the Korean won should have been disclosed in greater detail. The court will need to determine whether these risks were adequately presented to investors.

Court Declines to Dismiss Case

While WEBTOON Entertainment sought to have the case dismissed, the court recently declined to do so. The court cited the need for further examination of MAU and currency-related risks. This decision indicates that the court believes there are legitimate questions that warrant further investigation.

No Public Statement from WEBTOON

Despite the ongoing litigation, WEBTOON Entertainment has not issued a separate public statement regarding the case. The company's silence suggests a cautious approach as it navigates the legal proceedings. It remains to be seen whether WEBTOON Entertainment will release any further information about the lawsuit in the future.

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