In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at the way in which companies’ operations and disclosures about safety issues can translate into securities litigation. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.
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The recent Securities Class Action against Six Flags Entertainment Corporation (Six Flags) serves as a cogent reminder of how safety-related operational issues can quickly escalate into disclosure challenges, and even material securities claims. For D&O underwriters of entertainment venues, comparison with prior securities litigation involving similarly reputationally sensitive operators provides a useful framework for assessing how operational safety issues can evolve into disclosure-based securities exposure.
The following examines the Six Flags SCA and a similar securities case involving SeaWorld (SeaWorld SCA), including disclosure and external communications risks, with a discussion of takeaways for D&O insurers with comparable exposure.
Six Flags SCA
The Six Flags SCA alleges that the Form S-4 registration statement and joint prospectus filed in connection with the 2024 Six Flags–Cedar Fair merger contained materially false and misleading statements regarding the condition of Legacy Six Flags’ parks, capital investment levels, and safety, maintenance, and inspection practices. Based on these alleged misstatements and omissions, plaintiffs assert strict-liability claims under Section 11 of the Securities Act of 1933, along with Section 15 control-person claims against the directors and officers who signed or authorized the S-4.
According to Six Flags shareholder plaintiffs, post-merger results allegedly revealed deficiencies, which caused unexpected cost increases, elevated capital-expenditure needs, reduced EBITDA guidance, leverage pressure, analyst skepticism, and senior management departures, causing a 64% decline in share price. Notably, the Six Flags SCA seeks a finding of strict liability under Section 11, which imposes liability on an issuer for any material misstatement or omission in a registration statement without requiring proof of intent or reliance.
The complaint further asserts Section 15 control-person claims against the executives and directors who signed or authorized the S-4, seeking to hold them jointly and severally liable for the alleged Section 11 violations. As a result of the securities violations, Six Flags SCA plaintiffs allege that investors who acquired shares issued in the merger suffered hundreds of millions of dollars in losses.
As D&O Diary readers may recall, the United States Supreme Court has held that, to establish standing, Section 11 plaintiffs must plead and prove that the shares they purchased in a direct listing offering are traceable to the allegedly misleading registration statement. This is a high bar, and whether the Six Flags SCA shareholders can do this remains to be seen.
However, if evidence of overstated safety and maintenance practices comes to light, lessons for Six Flags and D&O underwriters may be learned from the SeaWorld SCA and settlement in the 2010s after the Blackfish documentary was released. Particularly, allegations that implicate guest or patron safety can carry reputational consequences that may evolve beyond operational remediation into disclosure-based securities claims when attendance, revenue, or financial performance is affected.
SeaWorld SCA
The SeaWorld SCA alleged that SeaWorld and several senior executives made materially false and misleading statements about the company’s operations, animal welfare practices, and financial performance during and after its 2013 IPO. According to SeaWorld shareholder plaintiffs, the IPO registration statement and prospectus failed to disclose material information about SeaWorld’s treatment of its orcas, associated trainer-safety risks, and the extent to which these issues exposed the company to reputational and regulatory harm.
After the 2013 documentary Blackfish, which focused on the captivity of Tilikum, an orca involved in the deaths of three people at SeaWorld, sparked significant public backlash and a decline in park attendance, SeaWorld allegedly attributed the downturn to unrelated factors such as weather and calendar shifts while downplaying or denying the documentary’s impact.
Based on these alleged omissions and misstatements, the complaint alleged Section 11 and Section 15 Securities Act claims tied to the IPO disclosures, as well as Section 10(b) and 20(a) Exchange Act claims for ongoing misrepresentations throughout the class period. When SeaWorld later acknowledged that declining attendance was linked to negative media attention surrounding proposed California orca-captivity legislation, SeaWorld’s stock price fell nearly 33%, allegedly causing substantial losses to IPO purchasers and open-market investors. SeaWorld settled the SeaWorld SCA with investors for $65 million.
Discussion
In both cases, the alleged securities violations stemmed from operational controversies that were not initially framed as financially material. SeaWorld shareholders alleged that the company misrepresented the impact of Blackfish on attendance and revenue, while the Six Flags SCA asserts that years of deferred maintenance and underinvestment required a massive, undisclosed capital infusion that negatively affected financial performance. Together, the cases illustrate how operational controversies can be reframed as disclosure failures once financial consequences emerge.
For D&O underwriters evaluating entertainment venues, both cases underscore that operational vulnerabilities can quickly acquire a disclosure dimension, particularly when they intersect with guest safety, animal welfare, or other reputationally charged issues. Amusement parks and themed entertainment operators can carry visible operational risk, and shareholder plaintiffs may leverage that visibility to argue that internal operational conditions were known, knowable, or reasonably foreseeable, and therefore material to investors.
Thus, D&O underwriters may want to closely scrutinize the consistency between management’s public narrative and the company’s operational realities, including inspection practices, maintenance backlogs, capex plans, safety protocols, and evidence of guest-impacting operational pressures. A disconnect between internal assessments and external messaging, even when not rooted in fraud, can become the basis for plaintiff shareholders alleging strict liability Section 11 claims or fraud-based 10b claims when financial results disappoint.
Finally, both cases highlight the heightened risk that arises when operational conditions intersect with reputational headwinds. The SeaWorld SCA and resulting $65 million settlement demonstrate how a single reputational event can cascade into regulatory scrutiny, activist pressure, earnings volatility, and securities litigation. The Six Flags SCA may show that failure to perform maintenance can produce similar pressure, once exposed through post-merger integration.
Therefore, D&O underwriters may also want to evaluate the company’s external-facing communications strategy, crisis-management preparedness, and cultural approach to transparency. Especially in an era where social media, consumer activism, and regulatory attention can amplify operational incidents.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This site is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.