WEBTOON's Legal Overhang: What the Smart Money is Actually Doing

The smart money isn't just wary of WEBTOON's user metrics; it's fleeing a court-validated trap. In November 2025, a U.S. District Court delivered a harsh verdict, denying the company's motion to dismiss a securities fraud class action. This wasn't a minor procedural hurdle. The court's decision validated the core allegation: that WEBTOON misled investors about its Monthly Active Users metric at the time of its June 27, 2024 IPO. The lawsuit specifically targets the Registration Statement, claiming it made materially false and/or misleading statements during the IPO's class period.

This legal overhang has triggered a wave of institutional investigation, moving beyond the courtroom. The court's validation of the fraud claims has prompted multiple law firms to launch probes into potential breaches of fiduciary duty by WEBTOON's officers and directors. One firm is now investigating whether the board violated securities laws around the disappointing quarterly results reported just one day after the IPO closed, which sent the stock into a tailspin. Another firm is examining the same period for potential fiduciary duty breaches following the court's denial.

The setup here is classic. The company sold its story to public investors at a premium, touting its user base. Then, within weeks, the numbers it had just reported as stable turned out to be bleak. The stock cratered. Now, the legal system has said: "You misled us." For institutional investors, this isn't a speculative risk-it's a confirmed governance failure that directly attacks the credibility of the company's most fundamental metric. When the smart money sees a court affirm a fraud claim and then sees law firms investigating its own board, it doesn't chase. It flees. This is the legal overhang that has prompted the flight, not the hype.

The Smart Money's Exit: Institutional Accumulation Turns to Flight

The court's verdict validated the fraud claim, but the smart money's vote of no confidence was cast earlier. Even as WEBTOON's stock trades at a 78.5% discount to its 52-week high, institutional investors are fleeing. The data shows a clear contraction in skin in the game. Average portfolio allocation to the stock has dropped 24.87% month-over-month, and the total number of institutional owners has fallen from 192 to 190. More telling is the net reduction of 1.29 million shares in the latest reporting period-a flight that contradicts any narrative of a deep-value opportunity.

This isn't a passive reduction; it's an active exit. Specific institutional exits are visible. In August 2025, Quantbot Technologies LP slashed its stake by 31.5%, while Goldman Sachs Group Inc. cut its position by 19.8%. These are not small, speculative moves. They are the actions of sophisticated capital allocators pulling their money out of a confirmed governance failure. The Fund Sentiment Score, which measures institutional accumulation, would show a sharp decline for WEBTOON during this period, signaling a complete reversal from any prior buying.

The bottom line is a lack of alignment. While the company's story may hinge on a turnaround, the smart money is not betting on it. When a court says the core metric was misleading and law firms are investigating the board, the rational move for institutional capital is to reduce exposure, not accumulate. The flight from the stock, even at depressed levels, is the ultimate signal. It means the perceived legal and governance risks far outweigh the potential upside, at least in the eyes of those with the most to lose. This is not a buying opportunity; it's a warning.

The Disney Catalyst: A Potential Signal or a Trap?

The recent Disney partnership is the kind of headline that can spark a rally. It's a potential catalyst that promises to leverage WEBTOON's IP library for new global content. But for the smart money, the real question is whether this news can overcome a deeper, more credible signal: the flight of institutional capital and the court-validated fraud claim. The catalyst looks promising on paper, but it's being weighed against a confirmed governance failure.

The legal overhang casts a long shadow. The court has already ruled that WEBTOON's IPO disclosures about its Monthly Active Users metric were misleading. Now, two separate law firms are investigating potential fiduciary duty breaches by the board, scrutinizing the same period of disappointing quarterly results reported just one day after the IPO closed. In this context, a new partnership announcement is easy to see as a distraction-a classic attempt to pump sentiment while the underlying credibility of the company's numbers is under fire. The smart money has already voted with its feet, exiting the stock even at depressed levels. A new deal doesn't change that calculus.

The true test of conviction, however, lies with the insiders. The smart money watches for skin in the game. Are the CEO or CFO buying shares to signal confidence that contradicts the institutional exodus? A review of recent filings shows no significant insider buying activity. This absence is telling. When a company is facing a court-validated fraud claim and board investigations, insider buying is the clearest signal that management believes the stock is mispriced. The lack of it suggests the leadership is not putting their own money on the line to support the Disney narrative. It's a trap for those chasing the headline while ignoring the legal and governance risks.

The key risk remains the expansion of legal developments. The SEC could step in, or the fiduciary duty investigations could deepen, potentially uncovering more misconduct. Each new development would only deepen the overhang, making any positive catalyst like a Disney deal harder to believe. For now, the Disney partnership is a potential signal, but it's a weak one. Against the backdrop of a court-validated fraud claim, institutional flight, and no insider buying, it looks more like a trap for the unwary than a genuine turnaround catalyst.

Catalysts and Risks: What to Watch for the Thesis

The thesis that a legal overhang is driving capital flight is forward-looking. It hinges on two key developments: the resolution of the fraud case and a reversal in institutional sentiment. The primary catalyst is the outcome of the securities fraud class action. A settlement or dismissal would be a major overhang removal, clearing the air for any future catalysts. The court has already ruled that WEBTOON's IPO disclosures about its Monthly Active Users metric were misleading, which is the core of the fraud claim. The lawsuit alleges the company failed to disclose decelerating revenue growth and currency headwinds. Until that case is resolved, the legal cloud will persist, making it difficult for the stock to find a sustainable floor.

The second signal to watch is institutional accumulation. The smart money has been fleeing, with average portfolio allocation dropping 24.87% month-over-month and total institutional owners falling. A reversal of this trend-a sustained increase in institutional ownership and a rise in the Fund Sentiment Score-would be a major positive signal. It would indicate that sophisticated investors are reassessing the risk/reward, perhaps seeing the legal overhang as priced in or the Disney partnership as a credible turnaround. For now, the flight continues, and any accumulation would contradict the recent pattern of institutional exits.

The key risk, however, is further legal developments. The SEC could step in, or the fiduciary duty investigations could expand, potentially uncovering more misconduct. One law firm is already investigating whether the board violated securities laws around the disappointing quarterly results reported just one day after the IPO closed. Another is examining the same period for potential fiduciary duty breaches. Each new probe deepens the governance overhang and raises the stakes. If these investigations lead to more lawsuits or regulatory action, they would only reinforce the smart money's exit and make any positive catalyst, like the Disney deal, harder to believe.

The near-term calendar offers a test. The Q4 2025 earnings report, due in a few weeks, will update investors on MAU trends and revenue. Guidance already flags a decline, so the real test is whether management can signal a stabilization. But even strong operational results will struggle to overcome the legal and governance risks that have already been validated in court. For the thesis to break, look for a settlement that removes the fraud claim from the books. For the thesis to hold, watch for any expansion of the legal overhang. The smart money is waiting for one of those two signals.