WAPO says Activision-Blizzard execs profited from dodgy but legal stock sale

    
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Yesterday we covered Activision-Blizzard’s third quarter financial results, which were… not good. While WoW Classic drove a subscription spike and saw Blizzard’s MAUs finally rise by 1M, the company on the whole saw its third consecutive quarter of plunging revenues and spent most of its investor call airtime reassuring analysts that its upcoming pipeline is sound.

Consider that, then, when you read The Washington Post’s latest piece on Activision-Blizzard. On November 6th, WAPO released an investigative article on the company’s stock buyback plan from just two years ago, putting it in the context of other such corporate deals across the US. The paper writes that in early 2017, Bobby Kotick and other executives promoted a $1B stock buyback program that resulted in insiders selling their shares back to the company as hungry investors gobbled them up; Kotick himself sold 4M shares, over $180M, just a slice of the $430M generated by the top five Activision execs in their sell-off. The end result is that the company hadn’t actually purchased anything by the time it ended the buyback, but the stock’s value had been driven up even as execs were cashing out at that inflated value.

WAPO makes clear that these kinds of schemes are “surprisingly common” and not technically against the law. “The trading plans, allowed by SEC rules, are intended to give insiders flexibility to arrange trades in advance on a regular schedule during the course of a year, or even longer,” the article says. “They give executives protection from insider trading charges as long as the plan is adopted when they are not in possession of insider information.”

However, the paper also quotes a Harvard law professor, who points out that companies are intentionally misleading investors by essentially “giving the market false information, then profiting from it by selling” when they begin a buyback plan knowing they won’t be repurchasing anything. One analyst called it a “triple dip.” And SEC Commissioner Robert Jackson went further, deeming the practice, which took off in 2003 following a change in the SEC’s rules, “market manipulation.”

Jackson, along with US senators on both sides of the aisle, have demanded a rethink of the rules governing these trades, and yes, there’s open government legislation on banning these types of buybacks altogether. According to WAPO, the SEC Chairman, Jay Clayton, refused to comment for the piece and has previously “challenged the view that the safe harbor may be promoting excessive buybacks.”

Insider trading, legal and otherwise, is unfortunately nothing new to the MMO industry; just in the last few years, we’ve covered cases involving former execs from NCsoft and Funcom.

Source: The Washington Post via GIbiz. Thanks, Anon.

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Bryan Correll

I feel I must point out the bigger picture of ActiBlizz (ATVI) stock. The graph represents the stock price (top) and trade volume (bottom.) The arrows indicate the sell-off by insiders following the buy-back announcement. There is a significant spike in the price (to $47 from $40) and a brief fall-back immediately after (about $45), but then the stock goes on a heavy upward trend, eventually hitting around $83 in late 2018 before the bottom drops out, eventually flooring at around $40 two years later. And it’s currently trading at around $56.

Insiders have a limited time period (generally 10 days beginning the third day after quarterly earnings are announced) in which they can trade. So if they want to sell stock they MUST do it immediately after these sorts of announcements.

So as shady as this all sounds, Actiblizz execs would have made more money selling off their shares at almost any point over the next year and a half than they did.

PS For some reason it took me about four tries to correctly spell “beginning.” :/

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rosieposie

Remember, Rich People become richer through Hard Work. We must continue to accept this.

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styopa

“The end result is that the company hadn’t actually purchased anything by the time it ended the buyback”
…um, yes, the company had purchased back millions of shares. They weren’t held in the wild, but they were issued shares and thus portions of capital ownership of the company which were recovered and absorbed. Whether they were in the wild or not doesn’t materially make a difference to the transaction or the end result for the company’s exposure.

It does seem like nothing so much as legitimized insider trading to me (for which I blame tame congressdrones working at the bidding of the lobbyist industry paymasters), but let’s not misstate facts in pursuit of witches we want to particularly burn today, shall we?

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Tanek

If you run a business and need to justify your actions with phrases like “well, it isn’t technically illegal”, I’m willing to bet you are not thinking of anyone other than yourself.

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johnwillo

I don’t agree with Warren’s proposal (as I understand it) to require 40% of a company’s board to be employees, but one has to wonder how that would affect schemes like this that essentially make fleecing the company and investors far more profitable for the individuals involved than doing their jobs and building the company.

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Robert Mann

Companies would put the 40% on the board, over-vote them, not give them the time of day, and continue as usual. Anyone speaking up would likely be dealt with as a troublemaker via papertrailing (gathering even the most tiny of offenses) and little bits of extra work that they really can’t handle with the tools they have.

More likely than not, they would get a “Good job” bonus if they were “A valuable contributor to the board”… aka they went with what the company wanted instead of saying anything against it.

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3dom

It’s sad to see how the best brains and the most passionate people in the modern world are busy inventing speculative schemes and methods to combat them.

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Armsbend

None of these people are the best brains in our society.

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MurderHobo

Yep. Look at CALPERS. Biggest retirement fund in America, and Cali put a high school graduate in charge and wound up running a private equity scheme that a first-year finance student could have seen through.

Good luck with your retirement plans, California. They put a Chinese spy in charge of managing the portfolio.

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Ashfyn Ninegold

The next person who refers to California as “Cali” is getting the ripe tomato treatment. No one in California likes “Cali”. It means nothing. Just us San Franciscans don’t refer to their city as “Frisco”. LA, of course, is and always has been LA.

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Bryan Correll

No one in California likes “Cali”

And nobody in the rest of the country cares whether or not Californians like it. ;-)

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Nathan Aldana

hell, most of them are too busy being pissed off if you point out their states are shitholes.

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Bruno Brito

I believed the baron’s lie that rich people, dangerous people, were also smart people.

Trump proved me wrong, and so did my country.

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Armsbend

I saw lula got out today. It seems that some interesting events are going down lately in BR.

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Bruno Brito

He’s still not able to run until 2035, because of a law HE HIMSELF passed, called “clean sheet law”.

Believe me when i say this: He’ll use everything in his power to put one of his thralls in the chair again, the guy just can’t accept that he lost the seat.

And now that he’s free, we’ll be back to the north-american polarization and worshipping of candidates here. It’ll be a mess.

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Robert Mann

I read too much of history for that. Rich and dangerous people are about on par with most of society. It’s just that the foolish or stupid they get into tends to be more widely known.

And with that note, looking back at those history books, our species is in dire need of some help. If there are any beings who can mitigate the rampant crisis of thoughtlessness, please… please help us not be us! XD

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Bruno Brito

If you’re asking God, he doesn’t care.