Today, the SEC announced that it would be fining Activision-Blizzard the video game developer and publisher behind games like World of Warcraft, $35 million, following an investigation into the company which found that the company had failed to disclose instances of sexual harassment to investors.
The SEC fine comes amid almost half a dozen separate investigations into Activision-Blizzard’s business practices, a handful of civil suits executed by former employees claiming workplace harassment and misconduct, and a potential sale to Microsoft.
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The SEC claims that Activision Blizzard failed to properly collect information regarding workplace harassment, which the SEC deems necessary to disclose to investors, and included clauses within its employment contracts that broke rules designed to protect whistleblowers from corporate retaliation.
The SEC’s first argument is based on the fact that, in its own materials to investors, Activision Blizzard notes that changes in personnel can heavily influence the company’s performance and should be considered a risk by investors. Activision Blizzard, according to the SEC, failed to properly collect data on sexual harassment and other forms of workplace misconduct, which can lead directly to major changes in key personnel. Even if there was data on workplace harassment and misconduct, the SEC claims that business leaders were not required by the company to report this information to investors.
The SEC’s second claim revolves around the company’s separation agreements. Between 2016 and 2021, a “significant number of employees” received separation agreements with the following clause:
Nothing in this Separation Agreement shall prohibit . . . disclosures that are truthful representations in connection with a report or complaint to an administrative agency (but only if I notify the Company of a disclosure obligation or request within one business day after I learn of it and permit the Company to take all steps it deems to be appropriate to prevent or limit the required disclosure).
This clause violates Rule 21F-17, part of which states that “No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement…with respect to such communications.”
While the company did not explicitly prevent former employees from reaching out to government agencies, the requirement to inform Activision Blizzard that employees had done so could have created a chilling effect on whistleblowers—although the SEC acknowledges that it “is not aware of any specific instances in which a former Activision Blizzard employee was prevented from communicating with Commission staff”.
Activision Blizzard has agreed to pay the $35 million fine, but has refused to admit or deny wrongdoing. This represents the company’s largest fine to date amid the avalanche of lawsuits and complaints to which the company has been subject. It is therefore worth noting that, to this point, the most significant fine facing Activision Blizzard did not result from the company’s failure to protect employees from harassment, but the company’s failure to disclose that information to investors. This means that the $35 million will be sent to one of three places: the U.S. treasury, a fund designed to support whistleblowers, or a fund which will payout to affected investors. The money will, in no way, be going to the victims of harassment around which this case revolves.
The last two years have been a controversy laden time for Activision-Blizzard, beginning with reports of widespread workplace harassment throughout the company. These reports were followed by several investigations, each of which have culminated in some form of legal action from organizations ranging from the California Department of Fair Employment and Housing, to the U.S. Equal Employment Opportunity Commission and the FTC.
