WEBTOON's Legal Uncertainty: How Savvy Investors Are Really Responding

WEBTOON Faces Legal Turmoil and Institutional Investor Exodus

Institutional investors are not merely skeptical of WEBTOON’s user statistics—they are actively distancing themselves due to a significant legal setback. In November 2025, a U.S. District Court rejected WEBTOON’s attempt to dismiss a securities fraud class action, marking a pivotal moment. This ruling went beyond a procedural issue; it affirmed the central accusation that WEBTOON misrepresented its Monthly Active Users figure during its June 27, 2024 IPO. The lawsuit specifically challenges the Registration Statement, alleging it contained significant false or misleading information throughout the IPO period.

This legal cloud has triggered a wave of scrutiny from institutional investors and law firms alike. The court’s validation of the fraud allegations has led several legal teams to investigate possible breaches of fiduciary duty by WEBTOON’s leadership. One firm is probing whether the board violated securities laws in connection with the disappointing quarterly results released just after the IPO, which caused the stock to plummet. Another firm is examining the same period for potential breaches of fiduciary responsibility following the court’s decision.

From Hype to Crisis: How WEBTOON Lost Investor Trust

WEBTOON’s narrative followed a familiar pattern: the company promoted its user base to attract public investors at a premium. However, within weeks, the supposedly stable metrics revealed significant weaknesses, leading to a sharp decline in share price. The court’s ruling essentially declared, “Investors were misled.” For major investors, this is not a hypothetical risk—it is a clear governance breakdown that undermines the credibility of WEBTOON’s core performance indicators. When legal findings confirm fraud and law firms begin probing the board, prudent investors don’t wait around—they exit. This legal uncertainty, not market speculation, is driving the institutional sell-off.

The Institutional Retreat: Data Shows a Clear Shift

Although the court’s decision validated the fraud allegations, institutional investors had already begun to withdraw. Despite WEBTOON’s stock trading at a steep 78.5% discount from its 52-week high, major investors are reducing their exposure. Recent data reveals a 24.87% month-over-month drop in average portfolio allocation, with the number of institutional holders decreasing from 192 to 190. More notably, there was a net reduction of 1.29 million shares in the latest reporting period, contradicting any narrative of a value opportunity.

This trend is not passive—it is an active divestment. For example, in August 2025, Quantbot Technologies LP reduced its stake by 31.5%, and Goldman Sachs Group Inc. cut its position by 19.8%. These are decisive moves by sophisticated investors responding to a confirmed governance crisis. The Fund Sentiment Score, which tracks institutional buying, would reflect a sharp downturn for WEBTOON, highlighting a complete reversal from previous accumulation.

Ultimately, there is a clear disconnect between the company’s turnaround story and institutional behavior. With the court confirming misleading disclosures and law firms investigating the board, the logical response for large investors is to reduce risk, not increase it. The ongoing sell-off, even at low valuations, signals that legal and governance concerns far outweigh any potential upside. This is not an opportunity—it is a red flag.

Disney Partnership: A Game Changer or Just a Distraction?

WEBTOON’s recent collaboration with Disney has generated headlines and could, in theory, spark renewed interest by leveraging its intellectual property for global content. However, for institutional investors, the real question is whether this news can offset the more pressing issues: the mass exit of major shareholders and the court’s fraud finding. While the partnership appears promising, it is overshadowed by unresolved governance failures.

The ongoing legal challenges remain a significant concern. The court has already determined that WEBTOON’s IPO disclosures regarding its Monthly Active Users were deceptive. Meanwhile, two law firms continue to investigate possible breaches of fiduciary duty related to the poor quarterly results released immediately after the IPO. In this context, the Disney deal risks being seen as a distraction—a classic attempt to boost sentiment while fundamental issues remain unresolved. Institutional investors have already made their stance clear by exiting the stock, and a new partnership does little to change that outlook.

Insider Activity: The Missing Signal

True conviction is often demonstrated by insider buying. Investors watch closely to see if executives, such as the CEO or CFO, are purchasing shares to signal confidence in the company’s future. However, recent filings reveal no significant insider buying. This absence is telling; when a company faces fraud allegations and board investigations, insider purchases would be a strong vote of confidence. The lack of such activity suggests that leadership is not willing to back the Disney narrative with their own capital, reinforcing the perception that the partnership is more of a trap than a turnaround catalyst.

The greatest risk remains the possibility of further legal escalation. The SEC could intervene, or ongoing fiduciary duty investigations could uncover additional misconduct. Each new development would only intensify the legal overhang, making any positive news, such as the Disney partnership, less convincing. At present, the Disney deal is a weak signal compared to the weight of legal and governance concerns.

Key Catalysts and Risks: What Investors Should Monitor

The thesis that legal uncertainty is driving capital flight is forward-looking and depends on two main factors: resolution of the fraud case and a reversal in institutional sentiment. The primary catalyst would be a settlement or dismissal of the securities fraud class action, which would remove a major obstacle and potentially pave the way for future positive developments. The court has already found that WEBTOON’s IPO disclosures about its Monthly Active Users were misleading, which is central to the fraud claim. The lawsuit also alleges the company failed to disclose slowing revenue growth and currency challenges. Until these issues are resolved, the legal shadow will persist, making it difficult for the stock to stabilize.

The second key indicator is institutional accumulation. With major investors continuing to exit—evidenced by a 24.87% monthly drop in portfolio allocation and a decline in institutional holders—a reversal in this trend would be a strong positive signal. If institutional ownership and the Fund Sentiment Score begin to rise, it could indicate that sophisticated investors see the risks as priced in or view the Disney partnership as a credible turnaround. For now, however, the pattern remains one of withdrawal, not accumulation.

The main risk is the potential for further legal complications. The SEC could get involved, or ongoing investigations could expand, possibly revealing more issues. One law firm is already examining whether the board broke securities laws related to the disappointing post-IPO results, while another is investigating for possible fiduciary breaches. Each new probe increases the governance overhang and raises the stakes. If these investigations lead to additional lawsuits or regulatory action, they will only reinforce the institutional exodus and make any positive catalyst, such as the Disney deal, harder to believe.

Looking ahead, the upcoming Q4 2025 earnings report will provide an update on user trends and revenue. While guidance already points to a decline, the key question is whether management can demonstrate stabilization. However, even strong operational results may not be enough to overcome the legal and governance risks already validated by the courts. For the narrative to shift, a settlement that removes the fraud claim would be necessary. Otherwise, any expansion of the legal overhang will keep institutional investors on the sidelines. The market is waiting for one of these decisive signals.