EA Games' 'Puffery' Not Fraud, Judge Finds
SAN JOSE, Calif. (CN) - Electronic Arts stockholders cannot claim securities fraud over the game developer's corporate "puffery" in extolling the virtues of its troubled "Battlefield 4" game, a federal judge ruled Monday.
Lead plaintiffs Ryan Kelly and Louis Mastro filed a class action suit last year against Electronics Arts and its officers and executives, for making false assurances to investors about the readiness of its action game "Battlefield 4." They represent anyone who purchased Electronic Arts common stock between May 8, 2013 and Dec. 5, 2013.
While Electronic Arts has a history of developing successful video games for existing and next-generation gaming consoles - with "Battlefield 3" generating more than 10 percent of the company's total revenue in 2012 - investors and gamers alike also knew of the company's history of botched game launches and failed attempts to transition its games to different consoles.
Investors and gamers tuned in to video game conferences where "BF4" garnered positive prelaunch reviews at live demonstrations. At the Electronic Entertainment Expo in 2013, EA's demonstration on Microsoft's Xbox One went on to nab 21 awards - leading to a huge jump in preorders for the game.
Despite challenges in development, the atmosphere at EA remained positive. "BF4" executive producer Patrick Bach also denied a possible release delay by stating "Luckily we've overcome those hurdles" in a prelaunch interview.
But customer complaints immediately followed Electronic Arts' three-string rollout, beginning with the release of the game for existing consoles on Oct. 29, 2013. Common complaints included that the game would not start or gave crash error messages, and that it froze so often that customers said it was unplayable.
It took more than three months for the company to fix BF4's defects.
Investors pointed to eight statements made by EA's executives - all defendants in the action - about the technology and development of "BF4," including one by CEO Andrew Wilson stating that they had achieved "a level of quality at launch that we didn't get to last time and our teams are already starting to think about investment in new innovation for the future."
Electronic Arts and its executives lobbied for a dismissal of the investors' securities fraud claims, arguing that the investors had not shown they had relied on the misstatements in buying stock. The company also pointed out that five of the eight statements which some of the investors claim to have relied on were actually made after they had purchased EA stock.
U.S. District Judge Susan Illston acknowledged this, and held that Kelly and Mastro cannot pursue securities fraud claims based on statements made after their Oct. 16, 2013 stock purchases. However, Illston said she will allow the investors to substitute new lead plaintiffs who bought stock based on misstatements made on Oct. 29 and Dec. 3. - provided their stock was purchased after those dates.
The judge also agreed with EA that some of the alleged misstatements amounted to nothing more than corporate confidence.
"Defendant [CFO Blake] Jorgensen's Oct. 29, 2013 statement comparing 'BF4' to a World Series ace pitcher is puffery," Illston wrote. "Defendant Wilson's Oct. 29, 2013 statement explaining that EA 'worked more closely with Microsoft and Sony throughout the entire process' resulting in a 'launch slate of games that are the best transition games that I've ever seen come out of this company' is an inactionable opinion, as well as a vague statement of corporate optimism."
Illston also dismissed investors' claims of intentional or deliberate recklessness, finding that "the complaint fails to adequately allege falsity and scienter for reasons articulated by defendants."
Kelly and Mastro have until November 3rd to fix their complaint.