By Cecilia D’Anastasio | Bloomberg

Santa Monica-based Activision Blizzard, the video game maker Microsoft is proposing to buy for $69 billion, settled federal allegations that it failed to put in place controls to properly handle workplace misconduct complaints and disclose them.

The Securities and Exchange Commission also alleged Activision Blizzard violated a whistleblower-protection rule by requiring former employees to provide notice to the company if they were contacted by the SEC’s staff for information. Activision settled the probe for $35 million, without admitting or denying the SEC’s findings.

According to the SEC, Activision Blizzard management didn’t fully understand the magnitude of employee complaints about workplace misconduct because the company lacked proper internal controls and procedures among its separate business units. As a result, it failed to assess whether issues existed that would have required public disclosure.

READ MORE: Activision Blizzard roils on report CEO knew of misconduct

Activision’s failure to implement the proper controls “left it without the means to determine whether larger issues existed,” that needed to be disclosed, said Jason Burt, director of the SEC’s regional office in Denver, said in a statement.

“Moreover, taking action to impede former employees from communicating directly with the Commission staff about a possible securities law violation is not only bad corporate governance, it is illegal,” he added.

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The SEC also found that the company violated whistleblower protections between 2016 and 2021. Although a “significant number of departing employees” signed the disclosure agreements, the SEC said it wasn’t aware of instances in which it prevented an employee from communicating with the agency.

Activision Blizzard, maker of popular video games like Call of Duty, said in a statement that it’s “pleased to have amicably resolved this matter” and that it has “enhanced” its disclosure processes.

Activision has been shrouded in controversy since 2021 when a state agency filed a sexual harassment lawsuit against the company, describing its “frat boy culture” and accusing its leadership of failing to take action. That prompted the SEC to launch its own investigation into how the company handled the reports of misconduct. Meanwhile, Microsoft’s planned purchase of Activision is facing several regulatory reviews.

In 2022, Activision Blizzard settled with the US Equal Employment Opportunity Commission and created an $18 million fund for victims of misconduct and harassment at the company.

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The $35 million penalty may serve as a warning to other firms about their workforce-related disclosures. The SEC has emphasized that it sees penalties as having a deterrent effect.

Activision shares were down 1.4% to $76.02 at 10:57 a.m. in New York.