A law firm in the United States is going after Chinese online gaming firm The9 in a new class action lawsuit claiming that The9's executives made inaccurate statements about the company's financial situation.
Coughlin Stoia Geller Rudman & Robbins LLP announced that a class action has been commenced in the United States District Court for the Southern District of New York on behalf of purchasers of American Depositary Shares of The9 Ltd. between November 15, 2006, and July 15, 2009, inclusive, against The9 and certain of the officers and directors of The9 for violations of the Securities Exchange Act of 1934.
The complaint charges The9 and certain directors and officers of The9 with violations of the Exchange Act. According to the complaint, during the time period, The9, directly and through its affiliates or subsidiaries, operated licensed massively multiplayer online role-playing games and advanced casual games in China, including World of Warcraft , Soul of The Ultimate Nation, Granado Espada, EA Sports FIFA Online 2, and Atlantica. It also operated other licensed games in mainland China, including Audition 2 and Field of Honor.
The complaint alleges that defendants made numerous positive statements regarding the company's financial condition, business and prospects. The complaint further alleges that these statements were inaccurate statements of material fact when made because defendants failed to disclose that it was becoming increasingly less likely that the company would be renewing the WoW contract with Blizzard; The9 had not even begun formal negotiations with Blizzard regarding the contract renewal; The9 and Blizzard had been at odds regarding The9's operation of WoW in China; and the equity investment by EA in The9 had made it less likely that Blizzard would renew the WoW contract because Blizzard would essentially be doing business with one of its greatest competitors.
On July 15, 2009, The9 reported a USD36.9 million reduction in net income for 2008 from USD51.1 million in net income that it had reported for that period on February 23, 2009. This corresponded to an enormous 72% drop. The9 admitted that it had not begun negotiations with Blizzard concerning the renewal of the WoW contract as of the date that it had previously represented to investors. In response to this news, shares of The9's stock dropped 18% to USD8.34.
The plaintiff seeks to recover damages on behalf of all purchasers of The9 ADSs during the the period.
The9 has not yet issued a formal statement on these allegations.