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Activision Blizzard to pay $35M fine in SEC settlement

Penalty for violating whistleblower protection and investor disclosure laws

Image of green grid and shapes with the words Activision Blizzard superimposed over the top Illustration: James Bareham/Polygon
Nicole Carpenter is a senior reporter specializing in investigative features about labor issues in the game industry, as well as the business and culture of games.

Activision Blizzard will pay $35 million to settle U.S. Securities and Exchange Commission charges that the company broke government rules on whistleblower protection and investor disclosure. The SEC launched an investigation into the World of Warcraft and Call of Duty publisher months after California’s Civil Rights Department, previously called the Department of Fair Employment and Housing, filed its sexual harassment lawsuit lawsuit in 2021. The U.S. Equal Employment Opportunity Commission filed and settled a similar lawsuit in 2021, with Activision Blizzard agreeing to pay a $18 million settlement in that case.

Unlike the Civil Rights Department and EEOC investigations, the SEC probe was not focused on sexual harassment or workplace misconduct itself. Instead, it was about how Activision Blizzard collects, analyzes, and discloses reports of those issues, and about the company’s separation agreements.

The SEC is focused on businesses and the economy, and it’s charged with protecting investors. In the Activision Blizzard case, it was investigating if and how the company disclosed to investors information about harassment and discrimination allegations. In legal speak, the SEC charged Activision Blizzard with failing to “maintain disclosure controls and procedures to ensure that the company could assess whether its disclosures pertaining to its workforce were adequate.” The second violation is tied to a rule that protects whistleblowers, allowing them to report information to the SEC without retaliation.

In this settlement, Activision Blizzard isn’t “admitting or denying” any of the SEC’s findings, the commission notes in the full filing.

“We are pleased to have amicably resolved this matter,” Activision Blizzard spokesperson Joe Christinat said in a statement to Polygon. “As the order recognizes, we have enhanced our disclosure processes with regard to workplace reporting and updated our separation contract language. We did so as part of our continuing commitment to operational excellence and transparency. Activision Blizzard is confident in its workplace disclosures.”

But what does this mean in practice? It’s about a framework for collecting and analyzing complaints, called “disclosure controls and procedures” in the SEC’s order. Then, relevant information has to be reported to investors, otherwise “management may not have adequate information to assess whether the disclosures it makes to investors are fulsome, accurate, and not misleading by omission.” The SEC said that while Activision Blizzard did make “risk factor disclosures” available to investors from 2017 to 2021, the company didn’t have the right procedure to collect and assess information “from a disclosure perspective.” It said that Activision Blizzard didn’t have enough information to determine just how numerous and how serious its workplace misconduct complaints were. Thus, the company couldn’t assess the risk for investors.

“The SEC’s order finds that Activision Blizzard failed to implement necessary controls to collect and review employee complaints about workplace misconduct, which left it without the means to determine whether larger issues existed that needed to be disclosed to investors,” Jason Burt, director of the SEC’s Denver Regional Office, said in a news release.

From 2020 to 2022, Activision Blizzard changed how complaints were collected and distributed to management, according to the order.

The second part of the settlement is related to whistleblower protections. Companies can’t use a confidentiality agreement to stop employees from speaking with government agencies about workplace violations. The SEC called into question the separation agreements that Activision Blizzard made employees sign when they left the company. From 2016 to 2021, those agreements had a clause saying that a departing worker could disclose information to government agencies, but only if they reported it to Activision Blizzard and let the company “take all steps it deems appropriate to prevent or limit the required disclosure.” The SEC said it wasn’t notified of any instances of a worker being prevented from talking to the agency, or any instances where Activision Blizzard enforced the clause.

“Taking action to impede former employees from communicating directly with the Commission staff about a possible securities law violation is not only bad corporate governance, it is illegal,” Burt said.

The SEC said that Activision Blizzard removed the clause and revised its standard separation agreement in 2022. Activision Blizzard has 10 days to pay the $35 million settlement, according to the order.

Activision Blizzard’s SEC investigation comes to a close just after a judge tossed out an investor lawsuit related to the Civil Rights Department’s suit. U.S. District Judge Percy Anderson found that the company didn’t lie to mislead investors about the government investigations. The Civil Rights Department’s lawsuit, which detailed alleged sexual harassment and discrimination at the company, is ongoing, despite Activision Blizzard’s forceful denial of the allegations. Following the Civil Rights Department’s filing, the Wall Street Journal published an extensive investigation into the company and CEO Bobby Kotick’s knowledge of some of the sexual misconduct complaints, alleging that he failed to inform Activision Blizzard’s board of directors. Activision Blizzard called the story “misleading” as workers across the company protested in favor of Kotick’s resignation.

Beyond that, investors are currently suing Activision Blizzard over the $68.7 billion plan to sell to Microsoft. But that’s the least of Activision Blizzard’s worries, as it heads to court to hash out the proposed deal with the U.S. Federal Trade Commission, which the FTC says violates antitrust laws.

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