New WWE Football League Provokes Oklahoma Pension Lawsuit

The Oklahoma Firefighters Pension and Retirement System has filed a lawsuit against World Wrestling Entertainment (WWE), which the plan owns shares in, charging that its chief had mis-allocated company money.

Specifically, the pension’s motion states that there is “a credible basis from which to infer” that WWE Chairman Vince McMahon usurped a corporate opportunity for XFL, his own personal private venture, and diverted resources from the WWE to support it.

XFL is a professional American football league owned by McMahon’s Alpha Entertainment that originally launched in 2001 and ran for a single season. McMahon recently revealed that Alpha intends to revive the league with a 10-week season beginning in 2020.

“Plaintiff [the Oklahoma Firefighters Pension and Retirement System] has a credible basis to believe that McMahon and potentially other senior officers of WWE may have breached their fiduciary duties by usurping WWE’s corporate opportunities and diverting resources from WWE to McMahon’s newest business endeavor, the XFL,” the court documents read.

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“Plaintiff also has a reasonable basis to believe directors of WWE may have breached their duties by failing to conduct oversight to ensure that those corporate opportunities were not usurped, that those resources were not diverted, and that McMahon did not engage in transactions that constitute a conflict of interest with WWE.”

The pension owns 107 shares worth about $6,867 of WWE stock.

Alpha Entertainment purchased the intellectual property of XFL from the WWE, and the pension wants to investigate the merits of the transaction. Inquiries include if Alpha Entertainment paid fair market value to the WWE for the intellectual property of the XFL, including giving WWE a percentage of the company, and if Alpha is paying fair market value for the support services that WWE is providing as part of the deal.

Although the WWE may have benefitted from the development of the XFL, the pension said, “it appears that McMahon set about to exploit the WWE’s XFL-related asset for the benefit of himself personally and to the exclusion of the WWE.”

The WWE sold its XFL rights to McMahon’s Alpha Entertainment for $1 million, plus an undisclosed equity interest that at the time was valued at zero dollars, the court documents state. “Those property rights, however, may have been worth far more than $1 million.” They pointed to a separate occasion where an acquisition offer was made to the company for $50 million.

A few other conflicts of interest were brought to the attention of the Court of Chancery of the State of Delaware. One was that law firm K&L Gates was advising both the seller and the acquirer in Alpha’s purchase of XFL rights from the WWE.

Another conflict was that McMahon’s attention, which the WWE has repeatedly said “are essential for the company’s value and its future performance,” would be compromised under his split responsibilities managing both Alpha Entertainment and the WWE.

McMahon’s employment agreement with the WWE also says he must not participate “in a business competing with the professional wrestling or other core businesses conducted by the [WWE] or any of its affiliates. According to the pension’s litigation, the WWE has clearly defined its competition as “professional and college sports, other lived, filmed, televised, and streamed entertainment.” Given the XFL is a professional sports league, McMahon’s new responsibilities in managing the organization are a clear breach of his obligations to the company, the pension alleges.

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MetLife has agreed to pay $10 million to settle SEC charges that it violated federal securities laws relating to its accounting for reserves associated with its annuity businesses.

According to a cease-and-desist order from the SEC, MetLife failed to keep accurate books and records and create and maintain an adequate system of internal accounting controls with respect to its accounting for reserves associated with certain annuity products.

The regulator said that for more than 25 years, it was MetLife’s policy to presume annuitants had died or would never be found if they didn’t respond to only two mailing attempts made approximately five and half years apart. It also said the company didn’t take enough steps to verify annuitants’ address information, which could be years or even decades old, before sending the letter. This resulted in a reduction of liability for future policy benefits, with a corresponding increase in income.

MetLife determined eventually that its processes for locating and contacting unresponsive annuitants were inadequate to justify the release of reserves. To correct the error, the company increased reserves by $510 million pre-tax as of the end of 2017 to reinstate reserves previously released, and to reflect accrued interest and other related liabilities accumulated over the 25-year period.

Of the $510 million adjustment, $372 million was considered an “error,” or a revision of prior period results. The remaining $138 million reflected a change in estimate for fiscal year 2017.

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“MetLife’s historical practices were insufficient to justify that presumption and the release of reserves,” said the order, “as was later confirmed when MetLife employed enhanced outreach procedures.”

The SEC’s order said that MetLife also overstated reserves and understated income relating to variable annuity guarantees assumed by one of its subsidiaries. MetLife disclosed this error was caused by data mistakes, including a failure to properly incorporate policyholder withdrawals into MetLife’s valuation model.

To correct the second error, MetLife reduced reserves by $896 million pre-tax as of the end of 2017 and recognized the same amount as income. Of the $896 million adjustment, $682 million represented a correction of prior-period errors going back more than a decade, while the remaining $214 million was recognized as a change estimate for fiscal year 2017.

MetLife attributed the second error to a material weakness in its internal control over financial reporting relating to data validation and monitoring of reserves for the variable annuity guarantees issued by its former joint venture in Japan.

Without admitting or denying the SEC’s findings, MetLife has agreed to cease and desist from committing or causing any future violations of these provisions and to pay a civil penalty of $10 million.

“Investors are entitled to the reliability and accuracy of financial information,” said Marc Berger, Director of the SEC’s New York Regional Office. “The Commission found that MetLife’s insufficient internal controls caused longstanding accounting errors.”