The California Department of Fair Employment and Housing, a state watchdog agency, has subpoenaed Activision’s directors related to the company’s handling of the workplace issues, according to people familiar with the matter. It also has subpoenaed police departments in the Los Angeles-area for any records they have related to longtime Chief Executive Bobby Kotick and 18 other current and former Activision employees, according to the people and to documents viewed by The Wall Street Journal.
The department’s move represents an escalation of its original complaint against Activision, which was made public in July. That complaint alleged sexual harassment and gender-pay disparity across the company’s roughly 10,000 employees, but didn’t specifically mention Mr. Kotick, except regarding his salary, or Activision’s directors.
Activision has disputed the department’s allegations and an Activision spokeswoman called the subpoenas to police departments an “extraordinary fishing expedition.”
Separately, the Securities and Exchange Commission has sent an additional subpoena to Activision as part of an investigation it launched last year into the company’s handling of sexual harassment allegations. The SEC, as part of that investigation subpoenaed several senior Activision executives, the Journal reported in September, including Mr. Kotick, who has led Activision for more than 30 years. Activision has said it is cooperating with the SEC probe.
The more recent subpoena, viewed by the Journal, asked for records and communications from a much longer list of current and former executives than the SEC previously sought, and dating back farther, to 2016.
Both regulatory moves appear to have come after Santa Monica, Calif.-based Activision, producer of hit game franchises including World of Warcraft and Candy Crush, struck a deal to be acquired for $75 billion in cash by Microsoft. The SEC subpoena is dated Jan. 18, the day the two companies announced the deal. A subpoena from the California regulator to the Los Angeles Police Department is dated two days later.
Activision has moved in Los Angeles County Superior Court to quash the agency’s subpoenas to police departments, court records show. The Activision spokeswoman, Helaine Klasky, said those subpoenas are “calculated to harass, annoy and embarrass rather than serve any legitimate purpose.” She declined to comment on the California agency’s subpoenas of Activision’s directors and on the SEC’s move.
A spokeswoman for the Department of Fair Employment and Housing didn’t respond to a request for comment on Activision’s assertion.
Spokesmen for the SEC and Microsoft declined to comment.
Microsoft’s move to acquire Activision will significantly expand the software giant’s videogame capabilities. Mr. Kotick isn’t expected to remain at Microsoft after the acquisition closes, which the companies anticipated will be in 2023, the Journal has reported, citing people familiar with those plans. The U.S. Federal Trade Commission will be reviewing the deal, the Journal has reported.
The deal came together after a November investigative article in the Journal that reported that Mr. Kotick knew of sexual misconduct allegations across the company and didn’t inform the board of directors. The story also detailed a harassment allegation against Mr. Kotick from 2006, when an assistant complained that he had threatened in a voice mail to have her killed.
In January, the Journal reported that Activision had collected about 700 reports of employee concern over misconduct and other issues across the company.
An Activision spokeswoman has called the Journal’s reporting “misleading” and said Mr. Kotick deeply regrets the incident with his assistant. She disputed the 700 figure, saying some of the issues reported were benign and duplicate cases. Activision has announced a number of steps it says are aimed at improving its workplace and has fired or pushed out dozens of employees as part of an internal investigation.
Mr. Kotick said in a November interview that he was transparent with his board of directors. The board has publicly supported Mr. Kotick, as well as the deal with Microsoft.
Activision said in September that it had reached an $18 million settlement with the U.S. Equal Employment Opportunity Commission to resolve a separate investigation by that agency into workplace misconduct allegations. The settlement has yet to be approved by a judge.
Activision and the Equal Employment Opportunity Commission have been locked in a monthslong legal battle with the California Department of Fair Employment and Housing over that settlement after the California agency sought to block it, saying the agreement could ruin the state’s case. A judge ruled against the department, which is appealing.
After the Journal’s November article, nearly a fifth of Activision’s employees signed a petition calling for Mr. Kotick to resign, and a number of business partners and shareholders expressed concerns. By the time of the Microsoft deal announcement, Activision’s stock price had fallen more than 30% since the California regulatory’s complaint was made public in July.
Ms. Klasky said in her statement that “every single report the company receives matters, and we have significantly increased the resources available to ensure that we can quickly and thoroughly look into each one.” She said the company’s expanded Ethics & Compliance team has completed reviews of more than 90% of internal reports since July.
If the government investigations into Activision aren’t resolved before the Microsoft deal closes, Microsoft will then have to take them on, according to corporate governance and mergers and acquisitions experts.
Asked about Activision’s workplace issues when the deal was announced, Microsoft gaming chief Phil Spencer told the Journal: “We see the progress that they’re making that was pretty fundamental to us deciding to go forward here.”
Any new movement in those probes is unlikely to derail the deal, except if regulators were to uncover something that affected the value of Activision, a “material adverse change,” said Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware.
In the case of Activision and Microsoft, Microsoft is required to pay Activision a breakup fee of about $3 billion after April 18, 2023, if the company walks away, securities filings show. Activision, meanwhile, has to pay about $2.3 billion if it abandons the deal.
In the California probe, the Department of Fair Employment and Housing is looking into directors’ knowledge and handling of the sexual harassment and other allegations internally over the years, and how the directors worked with executives at the company, according to the people familiar with the investigation.
It couldn’t be learned why exactly the department is seeking police records. In a court filing, the department said it was prompted by information in “public reporting,” including by the Journal, but didn’t elaborate.
A subpoena to the Los Angeles Police Department, reviewed by the Journal, shows the agency is asking for “documents related to any complaints and/or criminal investigations,” for 19 current and former Activision employees, including Mr. Kotick. The agency also is asking for documents related to any complaints, calls for service or criminal investigations related to Activision’s annual company convention known as BlizzCon, between 2015 and 2019. An LAPD spokeswoman declined to comment.
The state agency has investigated alleged misbehavior at California companies in recent years, and in December announced a settlement of more than $100 million with Activision rival Riot Games, a subsidiary of China’s Tencent Holdings Ltd. Initially, Riot had proposed a settlement of $10 million, according to a department press release.
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