On Sunday, an order was filed in the Central District of California dismissing a class action lawsuit against gaming company Activision Blizzard. The order comes after the plaintiff’s third attempt to amend the securities action, and bars the plaintiff from further amendments.
In the complaint, the plaintiffs claimed that “Defendants misled the investing public by making material misstatements and omissions concerning rampant sexual harassment and discrimination at the Company, and the existence of investigations initiated in 2018 by the California Department of Fair Employment and Housing (“DFEH”) and the United States Equal Employment Opportunity Commission (“EEOC”) .”
The plaintiffs previously argued that this behavior violated the Exchange Act and caused them financial damage.The specific issue involves Activision’s 2019-2020 10-K SEC filings, which the plaintiff claimed downplayed the seriousness of the investigations.
According to the order, “The Court previously granted Defendants’ motions to dismiss the First and Second Amended Class Action Complaints on the basis that Plaintiffs failed to plead sufficient facts to establish that the SEC filing statements were false or misleading, and failed to plead particularized facts from which the Court could draw the necessary strong inference of scienter.”
In the amended complaint, the plaintiffs added five new confidential witnesses, multiple articles reporting on the alleged misconduct, a proxy statement by Activision stating how much they value diversity and inclusion, the existence of an internal investigation, firings, and other pieces of evidence that they believed suggested Activision’s awareness of the issue.
In regards to the burden of proving falsity, the court once again sided with the defendant. It stated that “Though the 3rd AC includes new factual allegations, as well as a reorganization of previously alleged facts, the Court continues to find Plaintiffs’ allegations deficient to show falsity. First, Plaintiffs’ new references to reporting on sexual misconduct and resulting fallout at Wynn Resorts and Riot Games fail to support falsity. Plaintiffs argue that these articles demonstrate the threat that #MeToo, sexual harassment allegations, and the Investigations posed to the Company. However, Plaintiffs cannot use these articles, that are not about the Company and concern external matters, or the broader backdrop of a national social movement absent specific contemporaneous facts to support a claim that Defendants knew the statements within the SEC filings were false at the time they were made.”
On scienter, the court also ruled in favor of the defendant. In their complaint, “Plaintiffs argue that [Activision Blizzard CEO Bobby] Kotick acted “knowingly or recklessly” in signing the SEC filings and/or related SOX certifications, based on allegations that Kotick was aware of pervasive sexual harassment at the Company, knew details of the Investigations, and was involved in the firing of senior Company employees and changes to the Company’s HR department”. However, the court believes that “Under the heightened PLSRA pleading standard, none of these allegations establish a strong inference that the Individual Defendants knew the statements in the SEC filings were false when made, or that they acted recklessly.”
Additionally, the court says that the plaintiff repeated their previous argument “word-for-word”, and did not make enough substantial changes.