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The Securities and Exchange Commission is investigating three investors for alleged massive insider trading just ahead of Microsoft’s January announcement of merger plans with Activision Blizzard, according to a Wall Street Journal report.
Film and music executive David Geffen, broadcasting executive Barry Diller, and Diller’s stepson Alexander von Furstenberg collectively spent over $108 million to buy $40/share call options of Activision Blizzard stock on January 14, according to the report. On January 18, when the Microsoft merger plans were announced, those shares rose 26 percent to $82.31, representing an unrealized gain of about $60 million for the three investors. The value of those options could increase further if the merger goes through at Microsoft’s proposed per-share price of $95.
“It was simply a lucky bet,” Diller told the Journal. “We acted on no information of any kind from anyone. It is one of those coincidences.”
Diller and Activision Blizzard CEO Bobby Kotick serve together on the Coca-Cola board of directors, though that company announced last week that Kotick would be leaving his position on the board later this year. Kotick had been talking to Microsoft about a potential acquisition since November, according to subsequent reporting and an SEC filing outlining the timeline.
JPMorgan, which organized the private stock option sale with the three investors, is currently required to report evidence of potential market manipulation as part of a $1 billion settlement it reached with the SEC in 2020.
In September, The Wall Street Journal reported that the SEC was also investigating Activision Blizzard over the company’s handling of widespread allegations of sexual misconduct and workplace discrimination and whether related information was properly disclosed to shareholders by executives.
Another investor lawsuit
News of the insider trading investigation comes as Activision Blizzard management faces a fresh lawsuit from shareholders who allege that the proposed merger is “unfair for a number of reasons.” Chief among those reasons, according to the suit filed by 20 named and unnamed Activision investors (and reported by Polygon), is that “it appears as though the Board has entered into the [proposed merger] to procure for themselves and senior management of the Company significant and immediate benefits.”
The lawsuit also alleges that Activision Blizzard leadership didn’t properly set up an independent committee to evaluate the proposed merger. The merger was instead pushed by “Activision insiders” with “potential conflicts of interest” due to their ownership of “large, illiquid portions of Company stock,” the lawsuit says. The decision to propose a merger was “conducted out of the self-interest of [management] and was designed with only one concern in mind—to effectuate a sale of the Company by any means possible,” the lawsuit alleges.
Activision Blizzard has also failed to give certain financial details in a preliminary proxy statement supporting the merger, amounting to “materially misleading and/or incomplete statements,” according to the lawsuit.
The new lawsuit comes on top of a proposed class-action filed in August in which investors argued they were “economically damaged” by management’s decision to withhold material information about harassment and discrimination complaints.