A must-read for issuers, the SEC charged Activision Blizzard with a failure to maintain disclosure controls and procedures (DC&P) relating to employees’ complaints of workforce misconduct, which the SEC deemed relevant to support the company’s Form 10-K and 10-Q human capital-related risk factor disclosures. The absence of a direct nexus between the risk factors—which addressed the importance of recruiting and retaining qualified personnel and were not themselves deemed inaccurate or misleading—and employee complaints of workforce misconduct, for purposes of the alleged DC&P violation, was among the focal points of Commissioner Peirce’s strong dissent.
Also a topic of Peirce’s dissent, Activision Blizzard was charged with violating Section 21F-17 of the Dodd-Frank whistleblower rule, which prohibits companies from impeding an individual’s communications with the SEC about possible securities law violations, based on a notification (to the company) provision in its form separation agreement that the SEC determined “undermined the purpose” of the whistleblower rule, notwithstanding the lack of a direct correlation between the actual text of the separation agreement and the rule, and the fact that, to the SEC’s information and knowledge, the clause was never used to impede communications with the Commission or sought to be enforced by the company.
The implications for issuers of the SEC’s findings as reflected in this Order are potentially significant.