Woes Pile Up For Take-Two As It Reveals New SEC Investigation
Take-Two Interactive shares fell more than 7% Mon. after the videogame publisher said it received a notice that the SEC is doing a new investigation into the troubled company - an informal nonpublic probe into some stock option grants by Take-Two since Jan. 1997. The company said that before getting the notice it had “initiated an internal review of [its] option grants,” led by an independent board committee with independent legal counsel and accountants . Take-Two said it “intends to respond to the SEC’s information request and to fully cooperate in the informal investigation.”
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In late afternoon trading, Take-Two shares were down 7.52% at $9.34 after falling as low as $9.08 Mon.
Take-Two is one of an increasing number of companies under SEC investigation over stock option grants. But the news came only about 2 weeks after Take-Two shares tumbled when the game publisher disclosed that N.Y.C. Dist. Attorney Robert Morgenthau (D) had issued the company grand jury subpoenas (CED June 28 p4).
The company last year paid $7.5 million to settle with the SEC after a nearly 4-year investigation into its accounting practices. The publisher didn’t admit or deny any wrongdoing in that case.
Morgenthau had requested production of documents related to, among other things, the infamous “Hot Coffee” sex scenes hidden in its game Grand Theft Auto: San Andreas. Analysts last month voiced fear the N.Y. grand jury inquiry will drag on into 2007, perhaps leading to the departure of at least one key company executive. Take-Two said the district attorney requested production of documents starting Oct. 1, 2001, including those relating to: Company officers’ and directors’ knowledge regarding creation, inclusion and programming of hidden scenes in San Andreas, submission of the game to the Entertainment Software Rating Board (ESRB) for a rating, and its disclosures regarding Hot Coffee; the company’s disclosures and presentations on certain events, including 2005 acquisitions, partnering arrangements and earnings results; invoices from, payments to and termination of PricewaterhouseCoopers and retention of Ernst & Young as its independent auditor; certain compensation and human resources documents with respect to the company and certain current and former officers and directors; and documents concerning the activities of its board and board committees.
The district attorney may have acted out of concern over comments by Barbara Kaczynski, who resigned in Jan. from the company’s board and governance committee and as chair of the audit committee (CED Jan 27 p8). Take-Two disclosed in an SEC filing then that Kaczynski’s attorney, Bruce Baird, sent it a letter in which he said his client was deeply concerned about the Hot Coffee controversy and the “increasingly unhealthy relationship between senior management and the board of directors” at Take-Two.
Discovery last year of the sexual content in discs of the hit game San Andreas led to the ESRB rerating the game from M to AO (CED July 22/05 p7). That prompted most major retailers to pull the game from their shelves until Take-Two released an edited M-rated version. The controversy proved costly for Take-Two, later targeted in investor suits seeking class action status.
Earlier, L.A. City Attorney Rocky Delgadillo (D) sued Take-Two, accusing the publisher and its Rockstar Games development studio of “fraudulent and deceptive business acts and practices” in marketing San Andreas (CED Jan 30 p9). N.Y.C. Comptroller William Thompson (D) also joined Take-Two’s securities court fight with irate investors in April, when he filed papers in U.S. Dist. Court, N.Y.C., on behalf of city pension funds he manages (CED April 7 p7). - Jeff Berman