China's The9 sued over Warcraft ditching
Caught outside the Blizzard
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A US shareholder is seeking a class action lawsuit against Chinese game operator, The9, over its financially devastating loss of a contract to host World of Warcraft in the country.
The lawsuit alleges The9 made numerous false and misleading positive statements to shareholders regarding the company's health and status of licensing negotiations for WoW, while it was becoming increasingly likely its contract to host the online game would not be renewed.
Before Blizzard Entertainment dumped The9 this April for a rival Chinese operator, NetEase, the company was receiving as much as 90 per cent of its total revenue from WoW alone. The9 houses some of the most powerful privately owned supercomputers in the country, which it uses to host a number of online games.
According to the lawsuit, The9 executives repeatedly assured investors its exclusive four-year contact signed in 2005 to host WoW would be renewed, causing artificially inflated stock prices. But many of these statements were made at a time when The9 had not even begun formal negotiations with Blizzard.
In fact, the lawsuit indicates The9's relations with Blizzard had soured as early as 2007 over its operations of WoW in China, yet maintained everything was fine and that a contract renewal was a foregone conclusion up until early 2009.
The agreement was allegedly further strained in 2007 when The9 sold nearly 15 per cent of its ordinary shares to the game maker EA, effectively forcing Blizzard to do business with one of its greatest competitors. A The9 executive told investors the deal would not have any impact on its contract with Blizzard during a conference cal that year — but only when asked directly did he acknowledge The9 hadn't actually discussed the matter with Blizzard, according to court documents.
The complaint also claims during this period, several The9 insiders began dumping company shares in sales described as "unusual and suspicious in timing and amount" for a total of $125m.
The case was filed by Lawrence Glaser on behalf of himself and others in US District Court in New York. It has not yet received class-action status. A copy of the complaint can be found here. ®
COMMENTS
Re:Ted 3
>So in the end, you have to say that some Chinese companies are merely learning from the dubious strategies of some Western companies. Nothing surprising about that. And try to keep the Sinophobia to a minimum.
I am not going to defend the business practices western companies because for one thing most of them have moved into China with reckless abandon just to embrace the wild west anything goes got to make a billion doesn't matter who dies next quarter statement only thing that matters attitude. I just have a problem with anybody that thinks doing business in China is exactly like doing business in Western Europe or USA and expects the same rules. The fact is they still have a communist government that was setup by Mao (quite the economical genius he was killing 40 million of his own people through starvation, etc). Investors need to remember China could nationalize everything overnight, cash in and what could you do about it?
@ Matt 21 @asdf
asdf: "you are lucky if you don't invest in a company in this market that poisons infants to get ahead."
Matt 21: While this maybe true, I don't think US companies are much better. Coca Cola were ion trouble in Belgium for selling "poisoned" drinks a few years ago.
Very true Matt. Unethical and frankly immoral behaviour is not unique to Chinese companies.
Let's cite the example of Bayer. First, they sold HIV contaminated blood products for haemophiliacs. Then, when they could not sell the HIV laced products in the West, internal memos show that company sold the excess contaminated stock to Asian and Latin American markets as a "new heat treated product" that was free of HIV. (see http://en.wikipedia.org/wiki/Contaminated_haemophilia_blood_products for a starter article).
And there is Pacific Gas and Electric, the subject of the Erin Brockovich movie, which contaminated a whole town with hexavalent chromium, then lied to them, telling them that chromium is in multivitamins. True, but hexavelent chromium is not the same chromium in pills!
And of course, big tobacco, who have for years retained a retinue to lawyers, doctors, scientists and lobbyists to make huge profits on a product that they knew was harmful.
So in the end, you have to say that some Chinese companies are merely learning from the dubious strategies of some Western companies. Nothing surprising about that. And try to keep the Sinophobia to a minimum.
Fact checking
Amazing the level of naivete in some executives--all they need are assurances at board meetings before risking the livelihood of their stockholders.
About the only thing a lawsuit in China accomplishes is to alert the various authorities were the money went, for purposes of recovery of course!
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