Former CEO of Disney Bob Chapek along with former executive Kareem Daniel, current CFO Christine McCarthy, and the company itself, is having a lawsuit filed against them alleging violations of securities law for misleading statements about Disney+ and the health of the streaming business.

The lawsuit, filed on Friday (May 12) by the Local 272 Labor Management Pension Fund, has been submitted to the U.S. District Court for the Central District of California. The plaintiff is seeking a lead position for a class action representing purchasers of Disney shares between December 10, 2020, and November 8, 2022.

This period coincided with the time when Disney missed earnings guidance and faced a significant decline in stock value

Previously reported by Deadline.com, the complaint, which is dense and spans 39 pages, alleges that throughout the mentioned period, the defendants made false and misleading statements about Disney+. They are accused of concealing the decelerating subscriber growth, losses, and cost overruns faced by Disney+. The complaint also claims that Disney executives intentionally shifted costs from the Disney+ segment by debuting certain content on legacy distribution channels before making it available on Disney+. It further suggests that Disney made platform distribution decisions not based on consumer preference or behavior but to hide the full costs of building Disney+’s content library. The suit alleges that Disney was not on track to achieve its 2024 Disney+ paid global subscriber and profitability targets and that these targets were not achievable.

The lawsuit specifically refers to Disney’s quarterly financial results released on November 8, which included an operating loss of $1.47 billion for streaming and a decline in average revenue per Disney+ subscriber. These disappointing results caused a drop in Disney’s share price, leading to the legal action.

A Walt Disney spokesperson stated, “We are aware of the complaint and intend to defend vigorously against it in court.” Local 272 seeks a judicial determination to turn the lawsuit into a class action, along with unspecified damages.

It is worth noting that attempted class action suits are commonly filed when share prices experience a sharp decline. However, not all such suits progress further. In this case, a specialized law firm is representing the shareholders, and they are looking for additional shareholders to join as lead plaintiffs. The approval of class action status by a judge is necessary for the lawsuit to proceed.

Although shareholder suits are not uncommon, this case stands out for calling out high-profile executives and the financial challenges faced by Disney’s streaming division. Disney’s streaming woes have been a topic of discussion within the entertainment industry for the past year and continue to make headlines.

Bob Chapek’s sudden departure from Disney was announced on November 20, with former CEO Bob Iger returning to the position immediately. Kareem Daniel, whom Chapek had appointed as head of the Media & Entertainment Distribution division, also departed the following day. CFO Christine McCarthy, who reportedly played a role in Chapek’s removal, remains with the company and is seen by some as a potential CEO candidate.

Disney’s struggles in the streaming industry are not unique. As linear television viewing continues to decline, many companies have faced challenges and incurred significant costs in transitioning to streaming. Wall Street’s focus has shifted from subscriber growth to streaming profitability, leading companies to cut back on content spending.

Disney recently reported a decline in streaming losses for the March quarter, but the impact of this lawsuit and the ongoing challenges in the streaming industry remain to be seen.