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Activision Blizzard faces class action for 'misleading' investors in lead up to DFEH lawsuit

The class action argues that Activision Blizzard filed multiple quarterly reports that failed to mention the significance of ongoing government investigations that were later made known via the State of California's lawsuit.

Alissa McAloon

August 3, 2021

4 Min Read

Activision Blizzard is now staring down another lawsuit, this time one that hopes to rally Activision Blizzard investors against the company. This latest legal complaint takes the form of a class action accusing leadership of misleading investors in the leadup to the California DFEH lawsuit filed against it last month.

Notably, this latest legal complaint against the Call of Duty and World of Warcraft developer was revealed to the public mere hours before Activision Blizzard is set to reveal its latest financial report and hop on a conference call to take investor questions at 4:30 PM ET.

The class action, readable here and helmed by Rosen Law Firm on behalf of shareholder Gary Cheng, argues that Activision Blizzard filed multiple quarterly reports that failed to mention the significance of ongoing government investigations into its labor practices that eventually came to a head as the California DFEH lawsuit.

Specifically, 10-K filings from Activision Blizzard as recently as February 23, 2021 and cited as far back as August 4, 2016 state that Activision Blizzard is (as emphasized by the lawsuit) "party to routine claims, suits, investigations, audits, and other proceedings arising in the ordinary course of business," which can cover "labor and employment matters" and "compliance matters".

Each 10-K filing mentioned includes the note that "In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.”

The class action argues that, in the context of the State of California's lawsuit, those communications and several others published by the company failed to disclose information about Activision Blizzard that likely would've negatively impacted its stock price and investors' faith in the company.

The lawsuit lists out several situations that it alleges Activision Blizzard had knowledge of and failed to share with shareholders including instances of discrimination against women and minority employees, its fostering of a "pervasive 'frat boy' workplace culture that continues to thrive", and multiple unaddressed complaints of harassment, discrimination, and retaliation made to HR.

It argues that the above put the company "at greater risk of regulatory and legal scrutiny and enforcement", and that investors should've been informed that the California DFEH had been investigating Activision Blizzard for harassment and discrimination for the past two years.

"As a result, Defendants’ statements about Activision Blizzard’s business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all relevant times," explains the complaint.

To the legal team behind the lawsuit, Activision Blizzard's actions put it in violation of the Securities Exchange Act of 1934 that covers how companies communicate with investors. They argue that, in the context of the information the DFEH lawsuit has brought to light, Activision Blizzard "artificially inflated" the company's market price by choosing to omit adverse information from those reports.

"Had Plaintiff and the other members of the Class been aware that the market price of Activision Blizzard securities had been artificially and falsely inflated by Defendants’ misleading statements and by the material adverse information which Defendants did not disclose, they would not have purchased Activision Blizzard securities at the artificially inflated prices that they did, or at all."

The class action follows a wave of criticism levied against Activision Blizzard for its company culture and early and somewhat conflicting responses to the DFEH lawsuit, as well as an employee walkout organized to push back against both. It also comes the same day as Blizzard president J. Allen Brack's sudden departure from the company to "pursue new opportunities" and Activision Blizzard walkout organizers' public rejection of CEO Bobby Kotick's response to employee concerns.

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