Giant Interactive Loses Bid To Nix Securities Action

Giant Interactive Loses Bid To Nix Securities Action - 8/10/2009

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DISMISSAL NEWS:

Giant Interactive Loses Bid To Nix Securities Action
Christine Caulfield

Securities Law 360. August 10, 2009
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EXCERPT: A federal judge has rejected a bid to toss a consolidated shareholder action against Giant Interactive Group Inc. that accuses the China-based online game developer of breaching securities laws in connection with its $886 million initial public offering in the U.S. […] The initial complaint was filed Nov. 26, 2007, three weeks after Giant's IPO. Several nearly identical complaints followed and, in August 2008, the actions were consolidated and lead plaintiffs selected. A consolidated amended complaint was filed Oct. 6, 2008, on behalf of all investors who bought American Depositary Shares of Giant either pursuant or “traceable” to its IPO, and named as co-defendants the offering's underwriters Merrill Lynch & Co. Inc. and UBS Investment Bank, which earned $45 million for their part. According to the suit, the registration statement accompanying the IPO failed to disclose the magnitude of a problem known as gold farming, in which companies hire people to play online games to generate cybercurrency that can be sold on third-party Web sites for real cash, and the extent to which the numbers of recorded players of Giant games were inflated by the inclusion of the so-called gold farmers. The registration statement also allegedly failed to disclose the adverse impact that a 2007 rule change designed to thwart gold farmers was having on the popularity of the company's games. Giant's 2007 third-quarter financial results, released almost three weeks after the IPO, revealed a 6 percent decrease in the number of average players and a 17 percent decline in the number of peak users, which the company attributed to the game rule change, according to the complaint. The price of Giant's ADS dropped from $14.88 per share to $11.10 per share following the earnings release, the suit contends.

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