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Disney’s CFO is OUT Amid Serious Allegations of Corporate Fraud, Investigation Underway

bob chapek, christine mccarthy, kareem daniel disney execs lawsuit
Credit: Disney/Canva

An investigation is underway into claims by investors who say Disney execs engaged in unlawful business practices, including securities fraud, with regard to the success of Disney+.

RELATED: Former Disney CEO Reportedly Cooking the Books During His Tenure

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Credit: Disney+

A class-action lawsuit is mounting against The Walt Disney Company as shareholders have lodged complaints against the company about alleged dishonest business practices. The current investigation concerns whether three of Disney’s officers and/or directors engaged in those practices.

The Pomerantz Law Firm press release details the events that took place in late 2022 that have led to shareholders’ claims of wrongdoing on Disney’s part:

On September 21, 2021, Disney gave a virtual presentation at the Goldman Sachs Communacopia Conference. During the presentation, Chief Executive Officer Robert Chapek acknowledged that Disney+ subscriber growth had slowed in the fourth quarter of the fiscal year that ended on October 2, 2021. 

Disney CEO Bob Chapek talks park pass reservation system

Credit: Disney

On this news, Disney’s stock price fell¬†$7.44¬†per share, or more than 4%, to close at¬†$178.61¬†per share on¬†September 20, 2021.¬†

On¬†November 10, 2021, Disney reported its financial results for its fourth quarter and fiscal year ended¬†October 2, 2021. Disney posted quarterly results that missed Wall Street’s already diminished expectations as the Company saw a dramatic slowdown in Disney+ subscribers. The Company added just 2.1 million customers during the quarter (the smallest quarterly gain since the service’s launch two years prior), revenue of¬†$18.53 billion, and adjusted earnings per share of¬†37 cents¬†‚Äď all of which were below consensus estimates of 119.6 million subscribers,¬†$18.78 billion¬†in revenues, and adjusted earnings per share of¬†49 cents.

On this news, Disney’s stock price fell¬†$12.34¬†per share, or more than 7%, to close at¬†$162.11¬†per share on¬†November 11, 2021.¬†

Finally, on¬†November 8, 2022, Disney issued a press release reporting the Company’s financial results for its fourth quarter and fiscal year ended¬†October 1, 2022. Disney missed analyst estimates by wide margins on both the top and bottom lines. Revenue in the quarter grew just 9% to¬†$20.15 billion, below estimates at¬†$21.36 billion. Sales, at¬†$20.2 billion, fell about¬†$1 billion¬†short of analysts’ projections. Earnings, excluding certain items, fell to¬†30 cents per share, missing the average estimate of¬†51 cents¬†from analysts surveyed by¬†Bloomberg. The Company’s¬†DTC segment, which includes streaming services Disney+, ESPN+, Hulu, and Hotstar, reported a monumental operating loss of¬†$1.47 billion¬†compared to a¬†$630 million¬†loss in the same quarter the year prior. Revenue in the segment increased just 8% to¬†$4.9 billion. The Company also reported a decline in its average revenue per Disney+ subscriber as more customers subscribed through a discounted bundle with the Company’s other services. Notably, the bundled offering made up about 40% of domestic subscribers, confirming that Disney was relying on short-term promotional efforts to boost subscriber growth while impairing the platform’s long-term profitability.¬†

On this news, Disney’s stock price fell¬†$13.15¬†per share, or more than 13%, to close at¬†$86.75¬†per share on¬†November 9, 2022.

Disney’s then-CEO Bob Chapek was removed from his post back on Sunday, November 20–a move that sent shockwaves throughout the Disney community. Veteran CEO Bob Iger was reinstalled, returning to The Walt Disney Company under a two-year contract. On Thursday, Disney announced the stepping down of CFO Christine McCarthy, who will reportedly take a family medical leave beginning July 1, 2023. Her final day of leave, as well as her final day of employment with The Walt Disney Company, will be June 30, 2024. An interim CFO will take her place while the company searches for the next chief financial officer. No other details were shared.

disney cfo christine mccarthy

Credit: The Walt Disney Company

Both Chapek and McCarthy have been named in the suit, as has Kareem Daniel, who was fired from The Walt Disney Company shortly after Chapek’s removal. The three are named for their alleged involvement in “drafting, producing, reviewing and/or disseminating false and misleading statements‚ÄĚ regarding the success of the company‚Äôs streaming business, according to the 39-page document filed in the¬†U.S. District Court for the Central District of California on May 12.

It remains to be seen whether McCarthy’s leave of absence is related to the suit.

About Becky Burkett

Becky's from the Lone Star State and has been writing since she was 10 and encountered her first Disney Park when she was 11. It was love at first Main Street Electrical Parade. Joy is blank lined journals, 0.7 mm pens, and all things Walt, Woody and Buzz, PIXAR, Imagineering, Sleeping Beauty (make it blue!), Disney Parks history and EPCOT. At Disney World, you'll find her croonin' with the birdies at the Enchanted Tiki Room or hangin' with Woody and the gang at Toy Story Land. If you can dream, you really can do it!