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SEC Signals Workplace Misconduct is a Disclosure Issue with Activision Blizzard's $35 Million Settlement

International Alert

The SEC is taking a hardline against workplace misconduct and signaling to public companies that they ought to handle those issues with the same care and consideration as they have for other potential securities violations, such as those with financial statement implications. The SEC's latest action in this regard – a settled administrative proceeding against Activision Blizzard Inc. (Activision Blizzard or the Company) – faults Activision Blizzard for alleged "disclosure control" deficiencies related to employee complaints of workplace misconduct.

On February 3, 2023, Activision Blizzard, a California-based video game development and publishing company, consented to the entry of an SEC Order and agreed to pay a $35 million civil penalty for allegedly inadequate disclosure controls and procedures that failed to ensure that management could assess and, where necessary, disclose employee complaints of workplace misconduct. The Order also settles allegations that the Company violated SEC whistleblower protection rules by including language in settlement agreements with separated employees requiring those employees to notify Activision Blizzard if they receive requests from the agency. As is typical, the Company settled the matter on a neither-admit-nor-deny basis. 

Like many companies, Activision Blizzard's periodic reports disclosed risk factors related to its workforce, including that Activision Blizzard's "success depends to a significant extent on our ability to identify, attract, hire, retain, motivate, and utilize the abilities of qualified personnel, particularly personnel with [] specialized skills..." and that an inability to attract and retain personnel may negatively impact future results. According to the Order, however, during the relevant time, Activision Blizzard lacked controls and procedures that would alert management to allegations of workplace misconduct, which could concern these disclosures. In particular, the Company allegedly lacked "controls and procedures among its separate business units designed to collect or analyze employee complaints of workplace misconduct." Additionally, the SEC states that Company guidelines requiring that potentially material information be escalated from business units to Activision Blizzard's Disclosure Committee did not encompass information relevant to Activision Blizzard risk factor on its ability to retain employees, "such as employee complaints or incidents of workplace misconduct." As a result, the Company's Disclosure Committee did not analyze the employee complaints for disclosure purposes. 

The Importance of Workplace Misconduct Disclosures and the Use of "Control Failure" as a Litigation and Enforcement Tool 

Under Rule 13a-15(e) of the Exchange Act, companies such as Activision Blizzard that have a class of securities registered pursuant to Section 12 of the Act are required to maintain disclosure controls and procedures that are "designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the [Exchange] Act is accumulated and communicated to the issuer's management ... to allow timely decisions regarding required disclosure." According to the Order, Activision Blizzard breached Rule 13a-15(a) when it made risk factor disclosures pertaining to its workforce in its annual Form 10-K and 10Q reports for the fiscal years 2017-2020 but did not have in place systems to escalate to management certain information relevant to an evaluation of risk factors related to workplace misconduct. 

Commissioner Hester Pierce, one of two Republican Commissioners that serve on the five-member presidentially appointed commission, dissented arguing that the Order goes a step too far in the SEC's oversight, inappropriately enlarging the category of information required to be reported through controls to management from simply "information required to be disclosed by the issuer in reports that it files or submits under the Act" to "information that is relevant to an assessment of the need to disclose developments and risks that pertain to the issuer's businesses." Commissioner Pierce's dissent in the Activision Blizzard case is reminiscent of her 2020 dissent, with former Commissioner Elad Roisman, in the matter of Andeavor LLC on the basis that the SEC employed an "unduly broad view" of Exchange Act Section 13(b)(2)(B), the internal accounting controls provision of the Foreign Corrupt Practices Act (FCPA), to stretch the SEC's authority to cover certain non-accounting controls.

Activision Blizzard's resolution with the SEC follows a wave of sexual harassment and workplace misconduct allegations against the Company by former employees, including a three-year Consent Decree between the U.S. Equal Employment Opportunity Commission (EEOC) and Activision Blizzard settling charges that Activision Blizzard "violat[ed] Title VII of the Civil Rights Act of 1964 by subjecting employees to sexual harassment, pregnancy discrimination, and retaliation related to sexual harassment or pregnancy discrimination." Activision Blizzard is also embroiled in litigation with the California Department of Fair Employment and Housing.

A Potential Sea Change in Disclosure Procedures 

The increasing use of disclosure controls failures by the SEC and others as a tool to bring action against companies in the context of securities law violations signals a sea change for management and Boards who are now on notice that disclosure procedures must ensure that trends related to allegations of workplace misconduct are considered in connection with public company disclosure requirements. Overall, the Activation Blizzard Order and other recent legal matters on controls related to workplace misconduct serve as a helpful reminder that regulatory and litigation risks are increasing for companies that do not have comprehensive processes in place to track, report, analyze, and potentially disclose allegations of workplace misconduct.

For more information, please contact:

Ann Sultan,, 202-626-1474

Alejandra Montenegro Almonte,, 202-626-5864

Sandra M. Hanna,, 202-626-5902

Maame Esi Austin,, 202-626-5941

This alert has been republished in NYU Compliance and Enforcement.

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