WOW provider sued over stock plunge

According to multiple sources, this article by Pr-inside reports that a US shareholder sues China’s the9 and executives. Here is the full original story on Reuters that they refer to. The main focus is that “A U.S. shareholder sued Chinese online role-playing game developer The9 (NCTY.O) and its top executives on Wednesday, claiming they made incomplete or false reports that caused shareholders to buy stock at artificially inflated prices.” The article explains “part of the lawsuit centers on a The9 affiliate’s agreement with Vivendi Universal Games to license World of Warcraft (WoW) in China from mid-June 2005.” The lawsuit was filed in the Southern District of NY earlier this week.

The9 lost that right earlier this year. As reported fully on Bloomberg News in April of this year, “The9 Ltd., a Chinese online-game provider, fell the most since November 2007 in New York trading on speculation the company failed to renew its license to operate the “World of Warcraft” game. ” That same article noted that “NetEase, China’s second-biggest online games provider, rose 2 percent to $29.79, a record high.” Those rumors were substantiated as NetEase is now the provider for WOW in China.

For more specifics on the class-action lawsuit, you can part of the law firm’s press release at Coughlin Stoia Geller Rudman & Robbins LLP , and also reference the complaint itself at their their home page.

There is also a very concise summation of the case on JLM Pacific Epoch which distill the scenario in a couple of paragraphs. One notable quote, “Shares in The9 dropped 18% to $8.35 on July 15, after The9 reported a $36.9 million or 72% reduction in 2008 net income due to the loss of its operating license for World of Warcraft.”

If you’re desiring a little more background information on China and gaming, you can read:

Gamedaily: China to See Nearly 65 Million Online Gamers This Year

Gameindustry.biz interview with Blizzard(WOW publisher) about the size and scope of the manpower and computer resources used to run the online world across the globe

Gamasutra article from September 21 that World Of Warcraft Restarts Commercial Operation In China. The most notable quote: “Close to half of World of Warcraft’s 11.5 million users are Chinese — but analysts such as Lazard’s Colin Sebastian have estimated that, due to the Chinese business model and licensing structure, the region accounts for just 6 percent of WoW revenues”.

And an article from 2005, but still extraordinary in its relevancy, by “Gaming Steve”. It details his reading of the public disclosure required, and some financial truths, and then further some estimates, that can be gleaned from that public information.

I will be following this case as it unfolds, and hopefully we will all learn what level of transparency is required by a gaming company, publisher, or distributor in its public statements. As the money made from virtual worlds and games increases exponentially, we will most likely look forward to an increase in similar types of lawsuits.

Jay Moffitt is a Tennessee attorney. This blog is for entertainment and educational purposes only and does not consitute legal advice or create an attorney/client relationship. Jay Moffitt is not certified as a specialist in this area by Tennessee and Tennessee does not certify specialists in this practice area. All comments will be answered promptly and courteously as long as they are germane to the discussion and do not contain specific game names or incidents.

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