Case3:13-cv-05837-SI Document20 Filed04/11/14 Page1 of 59 1 ROBBINS GELLER RUDMAN & DOWD LLP 2 SHAWN A. WILLIAMS (213113) MATTHEW S. MELAMED (260272) 3 Post Montgomery Center One Montgomery Street, Suite 1800 4 San Francisco, CA 94104 Telephone: 415/288-4545 5 415/288-4534 (fax) [email protected] 6 POMERANTZ LLP 7 JEREMY A. LIEBERMAN LESLEY F. PORTNOY 8 600 Third Avenue New York, NY 10016 9 Telephone: 212/661-1100 212/661-8665 (fax) 10 [email protected] [email protected] 11 Co-Lead Counsel for Plaintiffs 12 [Additional counsel appear on signature page.] 13 UNITED STATES DISTRICT COURT 14 NORTHERN DISTRICT OF CALIFORNIA 15 In re ELECTRONIC ARTS, INC. ) Master File No. 3:13-cv-05837-SI 16 SECURITIES LITIGATION ) ) CLASS ACTION 17 This Document Relates To: CONSOLIDATED COMPLAINT FOR 18 VIOLATIONS OF THE FEDERAL SECURITIES LAWS 19 ALL ACTIONS. DEMAND FOR JURY TRIAL 20 RYAN KELLY and LOUIS MASTRO, Individually and on Behalf of All Others 21 Similarly Situated, 22 Plaintiffs, 23 vs. ) ) 24 ELECTRONIC ARTS, INC., ANDREW ) WILSON, BLAKE J. JORGENSEN, PETER ) 25 ROBERT MOORE, PATRICK SODERLUND) and LAWRENCE F. PROBST III, ) 26 ) Defendants. ) 27 ) 28 929894_1 Case3:13-cv-05837-SI Document20 Filed04/11/14 Page2 of 59 1 TABLE OF CONTENTS 2 Page 3 INTRODUCTION...........................................................................................................................1 4 I JURISDICTION AND VENUE ......................................................................................................6 5 PARTIES.........................................................................................................................................6 6 I BACKGROUND TO THE CLASS PERIOD .................................................................................8 7 Description of the Company and the Battlefield Game Franchise .......................................8 8 Battlefield 4 Was Material to EA’s Business and Was Expected to Represent a Significant Portion of the Company’s Future Revenues ......................................................9 9 Defendants Knew that Battlefield 4 Would Have to Work on Next-Generation 10 GamingConsoles ...............................................................................................................10 11 Defendants Publicly Acknowledged Failures and “Lessons Learned” from Prior Disastrous Game Launches ................................................................................................11 12 EA Demonstrates Battlefield 4 Graphics and Action Sequences to Strong Reviews ........15 13 DEFENDANTS’ FALSE AND MISLEADING STATEMENTS AND OMISSIONS OF 14 MATERIALFACT ........................................................................................................................18 15 Defendants Falsely Represent EA Has “De-Risked” the Technology Challenges of Transitioning to the Next-Generation Consoles ............................................................18 16 Reasons Why Defendants’ May 7, 2013, June 12, 2013 and July 23, 2013 17 Statements in ¶¶62, 69 and 74 Were Knowingly or Recklessly False and Misleading: ........................................................................................................................23 18 Battlefield 4 Executive Director Addresses Development Challenges and Reveals 19 that EA Considered Delaying Launch ...............................................................................25 20 Battlefield 4 Launches for Existing Consoles and Defendants Falsely Represent That They Have Avoided Problems Facing Competitors In Preparing Games to 21 Launch on Next-Generation Consoles ...............................................................................27 22 Reasons Why Defendants’ October 29, 2013 Statements in ¶¶83-86 Were Knowingly or Recklessly False and Misleading: ...............................................................29 23 Gamers Begin to Play Battlefield 4 and Are Confronted by Debilitating Defects 24 that Made the Game Virtually Unplayable ........................................................................30 25 Defects with Battlefield 4 for Next-Generation Consoles Begin to Become Known, Defendants Concede Some Problems but Stock Price Remains 26 ArtificiallyInflated ............................................................................................................34 27 Reasons Why Defendants’ December 3, 2013 Statement in ¶103 Was Knowingly or Recklessly False and Misleading: ..................................................................................38 28 929894_1 I CONSOLIDATED COMPLAINT FOR VIOLATIONS OF THE FED. SECS. LAWS - 3:13-cv-05837-SI - i - Case3:13-cv-05837-SI Document20 Filed04/11/14 Page3 of 59 1 2 Page 3 Defendants Admit the True Extent of Battlefield 4 ’s Defects and Stop Production 4 on All New Products Until the Game Is Fixed; Artificial Inflation is Removed fromStock Price ................................................................................................................38 5 Post-Class Period Revelations Underscore and Confirm Inference of Knowing 6 Falsity.................................................................................................................................40 7 DEFENDANTS’ SUSPICIOUSLY-TIMED INSIDER STOCK SALES .....................................43 8 COREOPERATIONS ...................................................................................................................46 9 THE PSLRA SAFE HARBOR DOES NOT APPLY ...................................................................46 10 CONTROL PERSON ALLEGATIONS........................................................................................47 11 LOSS CAUSATION/ECONOMIC LOSS ....................................................................................48 12 CLASS ACTION ALLEGATIONS AND THE FRAUD-ON-THE-MARKET PRESUMPTION............................................................................................................................49 13 COUNTI ...........................................................................................................................51 14 For Violation of Section 10(b) of the 1934 Act and Rule 10b-5 Against All 15 Defendants.............................................................................................................51 16 COUNTII ..........................................................................................................................52 17 For Violation of Section 20(a) of the 1934 Act Against the Individual Defendants.............................................................................................................52 18 PRAYER FOR RELIEF ................................................................................................................53 19 JURYDEMAND ...........................................................................................................................54 20 21 22 23 24 25 26 27 28 929894_1 CONSOLIDATED COMPLAINT FOR VIOLATIONS OF THE FED. SECS. LAWS - 3:13-cv-05837-SI - ii - Case3:13-cv-05837-SI Document20 Filed04/11/14 Page4 of 59 1 Court appointed co-lead plaintiffs Ryan Kelly and Louis Mastro (together, “plaintiffs”), 2 I individually and on behalf of all others similarly situated, by plaintiffs’ undersigned attorneys, for 3 I plaintiffs’ complaint against defendants, allege the following based on personal knowledge as to 4 I plaintiffs and plaintiffs’ acts, and upon information and belief as to all other matters based on the 5 I investigation conducted by and through plaintiffs’ attorneys, which included, among other things, a 6 review of Securities and Exchange Commission filings by Electronic Arts, Inc., as well as media and 7 analyst reports about Electronic Arts, Inc. and conference call transcripts. Plaintiffs believe that 8 additional evidentiary support will exist for the allegations set forth herein after a reasonable 9 opportunity for discovery. 10 INTRODUCTION 11 “All games have bugs, but not all games are broken upon release.” 12 1. This is a securities class action on behalf of all persons who purchased or otherwise 13 I acquired the publicly-traded securities of Electronic Arts, Inc. (“EA” or the “Company”) between 14 May 8, 2013 and December 5, 2013, inclusive (the “Class Period”) against EA and several of its 15 officers and executives for violations of the Securities Exchange Act of 1934 (“1934 Act”) and U.S. 16 Securities and Exchange Commission (“SEC”) Rule 10b-5 promulgated thereunder. Defendants are 17 EA; Chief Executive Officer (“CEO”) and director Andrew Wilson (“Wilson”); Chairman and, 18 during part of the Class Period, Executive Chairman Lawrence F. Probst III (“Probst”); Chief 19 Financial Officer (“CFO”) and Executive Vice President Blake J. Jorgensen (“Jorgensen”); Chief 20 Operating Officer (“COO”) Peter Robert Moore (“Moore”); President of EA Labels Frank D. Gibeau 21 (“Gibeau”); and Executive Vice President of EA Studios Patrick Söderlund (“Söderlund”). 22 2. EA develops, markets, publishes and distributes game software content and services. 23 I During the Class Period, EA was the third-largest gaming company in the world in terms of 24 revenues. One of its most popular game franchises is Battlefield, which was developed by EA’s 25 I wholly-owned game development studio DICE. 26 3. During the Class Period, defendants made knowingly or recklessly false statements 27 I perpetuating the misleading impression that, in preparation for the development of Battlefield