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China's The9 sued over Warcraft ditching

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Internet Security Threat Report 2014

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. ®

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