Activision Blizzard reaches settlement with SEC, will pay $35M fine

Activision Blizzard is to pay $35 million in U.S. Securities and Exchange Commission settlements for violations of government whistleblower protection and investor transparency rules. SEC began an investigation. 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. U.S. Equal Employment Opportunity Commission settled an identical lawsuit in 2021. Activision Blizzard agreed to pay $18 million.

The SEC investigation was not like the Civil Rights Department or EEOC investigations. It did not focus on workplace harassment and sexual harassment. 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. The Activision Blizzard investigation was focused on whether and how Activision Blizzard disclosed information to investors about discrimination and harassment. 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. This was part of our commitment to transparency and operational excellence. Activision Blizzard is confident in its workplace disclosures.”

What does it mean? 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.

Activision Blizzard has changed the way complaints are collected and sent to management from 2020-2022. This was in accordance with the order.

Second, the settlement deals with whistleblower protections. Companies can’t use a confidentiality agreement to stop employees from speaking with government agencies about workplace violations. Activision Blizzard’s separation agreements were questioned by the SEC. 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.

Activision Blizzard was ordered by the SEC to delete the clause and revise its standard separation agreements in 2022. Activision Blizzard is required to settle the $35 Million settlement within 10 days.

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.

Activision Blizzard has been sued by investors for its plan to sell the company to Microsoft at $68.7billion. 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.