EA hit with shareholder lawsuits

Class action suits accuse the leading game publisher of inflating sales forecasts.

David Becker Staff Writer, CNET News.com
David Becker
covers games and gadgets.
David Becker
2 min read
Leading video game publisher Electronic Arts was hit with a flock of shareholder lawsuits Tuesday stemming from the company's surprise profit warning last week.

The four class-actions suits charge that EA issued false and misleading public statements before the warning, which prompted a dramatic dip in EA's share price.

EA announced March 21 that it now expects to report net earnings of $1.62 to $1.64 per share for its 2005 fiscal year, which ends March 31. The company previously had forecast a per-share profit of $1.82 to $1.87.

EA blamed the shortfall on a number of factors, including unexpectedly strong competition at the end of 2004 from games such as "Halo 2," "Grand Theft Auto: San Andreas" and the online fantasy game "World of Warcraft."

EA executives said holiday shortages of video game hardware, including widespread shortages of Sony's market-leading PlayStation 2, also hurt game sales overall. "We clearly underestimated the impact of the hardware shortages on our Q4 sales," CFO Warren Jenson told news service Reuters at the time.

The suits were all filed in U.S. District Court for Northern California and seek to represent investors who held EA stock between Jan. 25 and March 21 of this year.

The suits charge that EA executives knew about adverse market conditions before they gave the initial estimates.

EA spokesman Jeff Brown said the company disputed the allegations. "We think these suits are without merit, and we intend to vigorously defend the company," he said.

The suits were filed by law firms Schiffrin & Barroway, Schatz & Nobel, Charles J. Piven and Brodsky & Smith.