Video game development company CD Projekt S.A. is facing a shareholder class action lawsuit alleging violations of U.S. securities laws. The lawsuit focuses on claims that investors purchased securities in the company under false and misleading statements about its much anticipated Cyberpunk 2077 game. The plaintiff filed the class action in the United States District Court for the Central District of California on December 24, 2020.
High Expectations
At the center of this class action is the long-awaited release of Cyberpunk 2077 from defendant game development company, CD Projekt S.A. Founded by Polish developers Michal Kicinski and Marcin Iwinski, the company had amassed a large fan base from earlier games including the Witcher series, Assassins of Kings, and Blood and Wine.
Gaming fans have excitedly anticipated the arrival of Cyberpunk since the company began development in 2012. The action-adventure game was touted as an advanced immersive experience set in the future megalopolis, Night City. The game was set for release on PlayStation 4, Google Stadia, Xbox One, PlayStation 5, Xbox Series X and Series S, and Microsoft Windows platforms.
The Build-Up
The hype for the game built-up for almost a decade, during which the company regularly interacted with their fanbase on Twitter to announce game updates. On January 16, 2020, the company announced the product was “complete and playable” but needed some “playtesting, fixing and polishing” that would delay the release to September 7, 2020. More release delays announcements came in September and October for “optimizations” on current and next-generation game consoles. On a late November conference call, one of the executive-defendants said the game was performing “great on every platform,” adding that bug levels will be so low gamers won’t notice them. Finally, Cyberpunk 2077 launched on December 10, 2020, in time for the holiday retail season.
The Crash
Shortly after its release, Cyberpunk 2077 was criticized for widespread technical issues. As users complained of bugs and glitches, the game was called “one of the most visible disasters in the history of video games.” PC players experienced significant bug problems, however, the Microsoft Xbox One and Sony PlayStation 4 versions were basically unplayable. Players reported game crashes, slow rendering, dropping frame rates, nonsensical happenings, and player inventory deletions.
Gamer publications reported that the game essentially didn’t deliver the experience CD Projekt S.A. had promised for a decade. “[I]t completely failed to fulfill the most basic expectations of actually functioning as a game, said Collider. Sony removed the poor performing Cyberpunk 2077 from its online store on December 17, 2020, “until further notice,” and offered refunds for games bought from the Sony PlayStation Store. Microsoft, who produces the Xbox, also unveiled refunds via the Microsoft store.
CD Projekt’s Response
On a December 14, 2020 company conference call, an executive-defendant indicated the current-generation console versions were “way below our expectations.” He went on to say the management board “underestimated the scale and complexity of the issues, we ignored the signals about the need for additional time to refine the game on the base last-gen consoles. It was the wrong approach and against our business philosophy. On top of that, during the campaign, we showed the game mostly on PCs.”
In the days after the launch, the company’s stock prices fell. ADRs fell from 25% over the 3 trading days from December 9-14, 2020. (Issued by a bank or broker, an ADR represents one or more shares of foreign-company stock in the foreign company’s home stock market.) Over that same period, CD Projekt’s common share (OTGLF) price fell 20.1%. In the aftermath of Sony’s actions, CD Projekt’s ADR (OTGLY) price fell 15.8% on December 18, 2020, to close at $18.50 per share. CD Projekt’s common share (OTGLF) price also fell 10.45% on December 18, ending at a per-share price of $78.80.
Shareholder Allegations
As players were dissatisfied with the quality of Cyberpunk, company shareholders felt similarly bewildered by the release—resulting in the current class action. The plaintiff alleges, on behalf of the class, that the company and the individual defendants violated §10(b) and Rule 10b-5 of the Securities and Exchange Act of 1934. The defendants allegedly did this by employing devices, schemes, and artifices to defraud investors. Further, the complaint asserts they made untrue statements of material facts or omitting material facts that defrauded the purchasers of company stock.
The second count asserts that the individual executives named as defendants were “controlling persons” of the company under the Exchange Act. In this capacity, they allowed information to be distributed that artificially inflated the company’s securities market price. As such, the plaintiff alleges that the individual defendants are liable under Section 20(a) of the Exchange Act for the company’s violations.
Experts Needed in the Cyberpunk 2077 Case
As this case proceeds, the attorneys involved will need expert witnesses on several technical industry issues. For example, early settlement discussions and testimony in front of a jury may well hinge on expert opinions on the video game industry standards in research and design. These discussions will also require expertise in best practices for determining what level of prelaunch testing and what level of bugs in a launched product are acceptable in the marketplace. Stock market experts will also likely be needed to analyze the stock prices and periods at issue to ascertain appropriate and accurate damages.
