Take Two CEO Guilty in Stock Option Scheme

Former Take Two Interactive CEO Ryan Brant has plead guilty in a stock option backdating scheme.

Former Take Two Interactive CEO and chairman Ryan Brant has plead guilty to charges that he backdated stock option grants to increase their value to himself, other Take-Two executives, and company employees. Brant plead guilty to first degree falsification of business records and will pay a fine of $7.26 million and serve five years’ probation. However, the guilty plea enables Brant to avoid prison time.

The conviction marks the first time a U.S. CEO has been convicted of charges resulting from the backdating of stock option grants. The SEC is currently probing dozens of companies regarding their allocation of stock options to employees as compensation; perhaps most visible of the bunch is Apple, Inc., who recently announced $84 million in restated revenue owing to backdating irregularities.

Although backdating stock option grants is not in itself illegal—the practice enables companies to grant options which can be purchased at a lower price while a stock’s current price is higher—regulations require the backdating be fully disclosed and recorded as part of a company’s revenues. Brant’s backdating created an off-the-books windfall of millions of dollars for himself and Take-Two employees, none of which was recorded as compensation.

Take-Two Interactive is best-known for its Grand Theft Auto video game franchise, owing in no small part to the controversy surrounding the original version of Grand Theft Auto: San Andreas which contained hidden sexually explicit content which was later unlocked by a third party modification. The subsequent lawsuits—as well as the game’s recall and redevelopment—cost Take-Two millions in revenue and brought the company—and the entire video game ratings system—under public and governmental scrutiny—although Take Two escaped FCC sanctions.

Brant founded Take-Two Interactive, and served as its CEO until February, 2001; he remained the company’s chairman until March 2004, and served in a non-executive capacity (and, finally, on disability leave) until resigning from the company in October 2006.