The investors, who sued the company as well as several current and former executives in Aug. 2021, alleged that sexual harassment and gender-based discrimination were endemic at the game maker, but that Activision failed to disclose the misconduct even though regulatory investigations into its “frat boy” culture posed material business risks.
California’s Department of Fair Employment and Housing and the U.S. Equal Employment Opportunity Commission both conducted investigations into allegations of misconduct at Activision. The EEOC settled its claims for $18 million in March. The DFEH case is still pending in Los Angeles Superior Court.
Investors alleged that Activision made materially false and misleading statements in SEC filings, the company’s Code of Conduct, and 2020 Environmental, Social, and Governance Report. Between 2018 and 2021, the disclosure for “legal proceedings” included in investor filings misstated that Activision was only party to “routine” investigations, the suit said.
Judge Percy Anderson of the U.S. District Court for the Central District of California granted Activision’s motion to dismiss the suit Monday, finding the investor allegations lacked particularity.
The investors allege that the media coverage of the regulatory investigations and Activision’s statement in response to the DFEH suit contradict Activision’s statements that the regulatory investigations were ordinary or routine, Anderson said. But such allegations constitute “fraud-by-hindsight,” and aren’t sufficient to support a claim of securities fraud without additional facts, he said.
Investors also claimed that provisions in Activision’s ESG report regarding the company’s policy on retaliation were materially false and misleading because retaliation against female employees was both rampant and tolerated.
The investors’ “bare bones assertions” that the ESG report is actionable fails to satisfy the heightened pleading requirements for a securities case, Anderson said. And “the backdrop of the #MeToo movement and national media coverage of accused industry titans is too vague a concept to raise a strong inference of scienter,” he said.
Anderson also rejected claims that individual executives must have known sexual harassment and discrimination were endemic, and that their trading activity demonstrated scienter. The complaint doesn’t establish the requisite facts to support that conclusion, and it fails to provide any information about the trading history of the executives to evaluate challenged stock sales.
The judge gave investors 30 days to file an amended complaint.
The case is Cheng v. Activision Blizzard, C.D. Cal., No. 2:21-cv-06240, 4/18/22.