A Blizzard of Controversy: Activision-Blizzard Settles with the SEC Amid Controversy
Loyola University Chicago School of Law, JD 2024
Activision-Blizzard became one of the largest gaming companies in the world after the merger between the two companies in 2008. The company is known for its games, and more recently for the controversy surrounding its workplace misconduct. On February 3rd, 2023, Activision decided to settle with the Securities and Exchange Commission for $35 million dollars. The suit, among other things, was brought because the company failed to maintain disclosure systems mandated by the SEC and also for the company’s violation of an SEC whistleblower rule. Activision is one of the largest video game companies in the world and the settlement represents a strong message to corporations that SEC regulations need to be followed.
The allegations against Activision-Blizzard
According to the SEC’s order, “between 2018 and 2021, Activision-Blizzard was aware that its ability to attract, retain, and motivate employees was a particularly important risk in its business, but it lacked controls and procedures among its separate business units to collect and analyze employee complaints of workplace misconduct.” In addition, the company required all former employees to sign an agreement to disclose to Activision when they filed any complaints to the SEC or spoke to any staff at the commission. These two allegations violate sections 3a-15(a) and 21F-17(a) of the Securities Exchange Act of 1934.
To summarize, section 3a-15(a) of the Securities Exchange Act of 1934 requires that an issuer of securities must maintain disclosure controls and procedures. Activision is an issuer of securities, as it is a publicly traded company that has investors that purchase stock in the company. They have a duty to disclose any changes to the company to investors and maintain a system of disclosure that actively updates the investors on changes. The changes that can impact the value of the company’s stock can be a variety of things ranging from a drop in sales, increase in production costs, or other things. In this case, it was allegations of workplace misconduct that resulted in a drop in employee retention and a series of lawsuits starting in 2021. Such conduct matters for investors because it tarnishes the public image of the company which subsequently lowers stock prices.
Furthermore, allegations of sexual harassment do not look good for the company, especially when the harassment is not addressed by management in the company. In addition, lawsuits can cost the company millions of dollars that decrease the total assets of the company and by extension decrease the value of the company. It is vital that shareholders are made aware of these issues well in advance and are informed on what actions are being taken to address these issues.
21F-17(a) then requires that the company allow employees to report violations to the SEC without reprisal or restriction. This section of the Securities Exchange Act was added as part of the Dodd Frank Act of 2010 to encourage whistleblowers to report violations. However, Activision required employees leaving the company to complete separation agreements that required them to disclose any discussion or requests for information from the SEC. An employee or former employee is less likely to report something if the company is aware of such discussions. The anonymity of informants is a vital part of reporting violations to the SEC and that’s why this violation is quite serious. Employees eventually decided to report the workplace misconduct, but the violations would have likely been disclosed earlier if the company had not added the SEC provision to their separation agreements with former employees.
What’s next for Activision-Blizzard?
As discussed, the SEC settlement is just one of many lawsuits that Activision-Blizzard has been dealing with in recent years. In response to dropping stock prices, the company has been in talks to be acquired by Microsoft. This deal has been opposed both by regulators in both the European Union and the Federal Trade Commission. It is uncertain if the merger will be approved amid added scrutiny and the recent legal issues Activision has had to address since 2021.
What is clear is the company failed to maintain an acceptable workplace environment for its employees and is paying the cost for the negligent management of the company. This example illustrates why companies like Activision need to employ compliance personnel and put in place to support employees and ensure compliance with state and federal laws. It is in the best interest of companies to protect their employees from hostile work environments because it saves them from large fines and court costs down the line. The SEC settlement is just one of many legal battles Activision-Blizzard has faced since 2021 and it likely won’t be the last.