Caption: Brookman v. Webtoon Entertainment Inc., et al.
Case No.: 2:24-cv-07553-CBM-RAO
Jurisdiction: U.S. District Court, Central District of California, Western Division
Judge: Hon. Consuelo B. Marshall
Summary
On November 14, 2025, Judge Consuelo B. Marshall granted in part and denied in part defendants' motion to dismiss the consolidated complaint in the securities class action against Webtoon Entertainment Inc. The Court dismissed claims based on certain statements about revenue prospects but allowed claims based on statements about monthly active users and risk disclosures to proceed. The Court did not address leave to amend.
Allegations Against Webtoon Entertainment Inc.
The complaint alleged that Webtoon and other defendants misled investors in the registration statement about the durability, consistency, stability, and growth potential of monthly active users. The complaint also alleged that Webtoon failed to disclose the scale of its declining user base and that risk disclosures about growth, revenue, and currency exchange rate fluctuations were misleading.
Defendants’ Motion to Dismiss
Webtoon, individual defendants, and underwriter defendants moved to dismiss the complaint with prejudice. They argued that the challenged statements were corporate puffery, not false or misleading, forward-looking, or accompanied by meaningful cautionary language. They also argued that they had no duty to disclose intra-quarter data about monthly active users or foreign currency exchange rates.
Plaintiffs’ Opposition
Plaintiffs countered that the statements about monthly active users created an impression of stability and growth that was contrary to known declines. They said defendants had a duty to disclose adverse trends that had materialized and that risk disclosures failed to notify investors of risks that had already occurred.
Court’s Ruling
The Court granted dismissal of the Section 10(b) and Rule 10b-5 claims with respect to statements about revenue prospects. The Court denied dismissal of the Section 10(b) and Rule 10b-5 claims based on monthly active user levels and risk disclosures. The Court denied dismissal of the Regulations S-K claims and the Section 15 claim.
Court’s Rationale
Falsity: The Court found that statements about monthly active user levels were not puffery and plausibly created an impression of stability and growth contrary to known declines. The Court found that statements about revenue prospects lacked specificity and were vague statements of optimism amounting to puffery.
Forward-Looking: The Court found that defendants failed to identify precise cautionary language addressing future projections about user growth to shield them from liability under the bespeaks caution doctrine.
Duty to Disclose: The Court found that plaintiffs plausibly alleged defendants knew of intra-quarter declines in monthly active users at the time of the statements and had a duty to disclose information contradicting positive statements about user levels.
Risk Disclosures: The Court found that risk disclosures about growth, revenue, and currency fluctuations were misleading because they did not notify investors that the risks had already materialized.
Regulations S-K: The Court found that plaintiffs plausibly alleged a violation of Item 105 because risk disclosures about monthly active users and currency fluctuations had already materialized at the time of the IPO. The Court found that plaintiffs plausibly alleged a violation of Item 303 because defendants knew of foreign currency fluctuations prior to the IPO that would negatively impact revenues.
Section 15: The Court found that plaintiffs pleaded an underlying violation of the Act and that individual defendants signed the registration statement on behalf of the company.
Case Status
The case continues in part.
