A class action lawsuit has been filed in New York against The9, operator of World of Warcraft servers in China for violations of the Securities Exchange Act.
"The complaint alleges that, throughout the Class Period, defendants made numerous positive statements regarding the Company’s financial condition, business and prospects. The complaint further alleges that these statements were inaccurate statements of material fact when made because defendants failed to disclose that: (i) it was becoming increasingly less likely that the Company would be renewing the WoW contract with Blizzard; (ii) The9 had not even begun formal negotiations with Blizzard regarding the contract renewal; (iii) The9 and Blizzard had been at odds regarding The9’s operation of WoW in China; and (iv) the equity investment by EA in The9 had made it less likely that Blizzard would renew the WoW contract because Blizzard would essentially be doing business with one of its greatest competitors. "
It looks like the Blizzard/The9 relation went sour already sometime in early 2006, well before the launch of 21b1Burning Crusade in China and everything points towards the fact that the only reason Blizzard didn't drop The9 back then was the four-year exclusive licensing agreement signed in 2005, which probably had severe sanctions for early termination. With World of Warcraft being more than 90% of The9's revenue, any information that would indicate that the agreement would not be renewed in 2009 would have been very important to investors already in 2006. Instead The9 pretended all the way until early 2009 that everything was fine and that they were preparing for the launch of Wrath of the Lich King, implying they would keep running WoW in China for the foreseeable future. Blizzard announced a deal with another Chinese operator, NetEase, in April 2009.
The complaint also includes records of stock sales by The9 insiders, indicating that they dumped company stock starting as early as late 2006 and kept doing so throughout 2007 - for a grand total of over $125 million - all while pretending that all was well with Blizzard. If all that holds up in court, I can only say "good luck" to The9 - they are going to need it...
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