Embattled game publisher Take-Two Interactive, which just last week saw the bulk of its management replaced in a shareholder revolt, has disclosed that the Securities and Exchange Commission has launched a formal investigation into the company’s past stock-option grant practices.
Prior to the recent boardroom takeover, Take Two had announced that a review of its past options grant practices had revealed a significant number of grants made over a six-year period that had apparently been backdated to benefit options-holders. In February 2007, fomer Take-Two CEO Ryan Brant pled guilty to criminal charges stemming from option backdating.
News of the SEC investigation is just the latest in a series of blows for the game publisher. The company took a serious financial and public relations blow over the original edition of its Grand Theft Auto: San Andreas game, which was found to contain hidden, sexually explicit content; the company spent millions recalling, retooling, and re-releasing the game amid cries from parents and citizens groups that the video game industry needs stronger supervision. Take-Two didn’t make many more friends in the industry with subsequent titles, including expansions of the GTA franchise and the school fighting game Bully.
Take-Two’s new board says it plans to unveil a new strategy for the company within three to six months; analysts generally agree that the company needs to move beyond milking its existing franchises.
Nearly 200 companies are either the subject of SEC investigations or have launched their own internal investigation into stock option backdating; former CEOs of Brocade Communications and Comverse Technology are facing charges in separate options-related cases. Backdating stock option grants is not illegal so long as the grants are disclosed and properly accounted-for in company financials.
