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New York City has filed its own lawsuit against Activision Blizzard

New York City officials are suing Activision Blizzard, saying that CEO Bobby Kotick "rushed" a takeover bid from Microsoft to avoid liability for misconduct at the company.

Activision Blizzard is being sued by New York City for allegedly rushing into Microsoft's $68.7 billion acquisition of the company. The lawsuit claims the deal was rushed in an effort to protect CEO Bobby Kotick and other board members from legal liability over their handling of sexual harassment and abuse allegations that surfaced last summer.

The lawsuit was unearthed by the team at Axios, and is technically a "220 complaint" that allows stockholders to force companies to share financial details when they have been accused of wrongdoing. The suit is being brought by New York City Employees' Retirement System, as well as pension funds for different public employees of the city. These groups hold shares of Activision Blizzard stock.

The city's argument is that the share price being offered in Microsoft's sudden acquisition of Activision Blizzard ($95/share, to be precise), is a serious undervaluation of the company, given that it represents a 1 percent premium of the Call of Duty and World of Warcraft publisher's stock price prior to the filing of a lawsuit by the California Department of Fair Employment and Housing.

It's a semi-complicated financial argument that launches into a direct accusation against CEO Bobby Kotick: that he and other board members rushed to process the acquisition in order to escape legal liability for breach of fiduciary duty. That breach relates to the torrent of sexual harassment, abuse, and discrimination claims that the company has faced during Kotick's tenure. 

"Kotick has been Activision’s CEO since 1993 (prior to Activision-Blizzard merger in 2008). It is now clear that during this lengthy tenure, Kotick was aware of numerous credible allegations of misconduct by the company’s senior executives—but did nothing to address them or prevent further offenses," the lawsuit states. "Kotick therefore faced a strong likelihood of liability for breaches of fiduciary duty, together with other members of the board."

The plaintiffs in the suit spared no criticism of Activision Blizzard's board, essentially accusing them of enabling Kotick to build a legal escape pod at the expense of stockholders. 

"The board’s decision to entrust Kotick with the negotiation process is inexcusable for the additional reason that Kotick stands to personally receive substantial material benefits whose value is not directly aligned with the merger price."

City representatives have been apparently requesting financial documents from Activision Blizzard since last fall, and have been repeatedly stonewalled by the company. Some documents it apparently obtained suggested that Activision Blizzard's Board "ignored credible and disturbing allegations of misconduct against its senior executives."

They cite allegations made against former Blizzard chief technology officer Ben Kilgore. Kilgore had been accused of misconduct by employees as early as 2015, but was promoted to CTO in 2017. 

"Given the Board’s decision to reward instead of sanction him, Kilgore unsurprisingly continued to abuse his position by acting inappropriately with Activision’s female employees," the plaintiffs asserted. "Upon his exit, his replacement as CTO offered the following advice to Activision’s employees: 'Don’t sleep with your assistant. But if you’re going to sleep with your assistant, don’t stop.'”

The full lawsuit is a dizzying read, and makes a direct connection between harms rendered to Activision Blizzard shareholders and harms suffered by employees. The central argument is that because Kotick and the board allowed the company's stock price to slip by failing to protect employees from harm, city employees who relied on their stock as part of their retirement plans have been harmed by the mismanagement.

There is an echo here of the complaints voiced by six state treasurers whose governments hold Activision Blizzard stock.

Kotick himself was implicated in the company's culture troubles when accusations surfaced that he had allegedly threatened to kill a former assistant and protected Treyarch co-founder Dan Bunting from being fired after being credibly accused of sexual harassment.

If this lawsuit sees any success, it will cast a shadow over Microsoft's efforts to take stewardship over Activision Blizzard, as what was previously seen as a savvy business move could be viewed as a complicated corporate maneuver to make sure Kotick and members of the board never face consequences for the harm employees have suffered under their watch.

We have reached out to Activision Blizzard and Microsoft for comment on this lawsuit, and will update this story when they respond.

Update: An Activision Blizzard spokesperson provided the following statement in response to New York City's lawsuit:

"We disagree with the allegations made in this complaint and look forward to presenting our arguments to the Court."

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