Activision slammed with class-action lawsuit

Legal complaint accuses executives at the True Crime publisher of profiting from an illegal accounting scheme--a charge the company vehemently denies.

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In a lawsuit filed in US District Court on Friday, several Activision executives and board members were accused of profiting by falsely reporting revenues. Of the 11 individuals named, the complaint states that Activision CEO Bobby Kotick and president Kathy Vrabeck personally gained by selling company stock whose price was inflated based on statements they knew--or should have known--were incorrect.

Lawyers from the firm Milberg Weiss said in a statement that the defendants "provided the market with rosy reports about the company's actual and projected future results," which had the impact "of causing the Company's shares to trade at prices nearly 300% higher" than what could have reasonably been expected. The complaint goes on, alleging that "with the Company shares at new heights, defendants then completed their massive second wave of insider trading pocketing tens of millions of dollars."

The highly detailed 52-page complaint continued, saying the defendants, "as part of their effort to boost the price of Activision stock, …misrepresented Activision's true prospects in an effort to conceal Activision's improper acts until they were able to sell at least $483 million worth of their own Activision stock." Lawyers invoked "generally accepted accounting principles" and charged the defendants with "engaging in an illegal accounting scheme" and violations of the Securities Exchange Act of 1934.

Among the practices alleged in the complaint are that Activision shipped product to retail customers that it knew would subsequently be returned; that it booked revenue on "consignment sales"; and that it issued "side-letter agreements" with customers, which provided extended payment terms (or other beneficial terms for the customer) that were not included in the formal documentation associated with the order. The complaint also alleges that Activision would often "re-package old products as being new or updated versions, when, in fact, these supposedly new products were barely different than the preceding versions."

As reported by Reuters, Milberg Weiss lawyers allege that immediately after Activision posted better-than-expected profits for the quarter ending in December 2000, it raised its forecast of future earnings. It then reduced its forecast for the quarter ending December 2002 on weak game sales. During that period, Activision shares rose nearly 28 percent. It was during the period of February 1, 2001, and December 17, 2002, that company executives and other defendants sold company stock, and those transactions are the basis for the lawsuit.

Today, Activision issued a response saying that it "strongly denied the allegations" and added that it would "vigorously defend this case."

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