“Grand Theft Auto” Game Maker to Pay $3M to Settle Illegal Stock Option Backdating Charges

Holding:

Take-Two Interactive Software, Inc. (“Take-Two”), the publisher and distributor of the “Grand Theft Auto” computer video game, has agreed to pay $3 million to settle accusations filed by the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) that it had engaged in illegal stock options backdating over a seven-year period. Without admitting or denying the SEC's allegations, the company also agreed to the issuance of an injunction against future violations of certain provisions of the federal securities laws. The settlement is subject to approval by the United States District Court for the Southern District of New York. If court approval is obtained, the settlement will conclude the SEC's investigation of this matter with respect to the company. As part of the settlement agreement with the New York County District Attorney, the company acknowledged that certain of its former directors and officers engaged in certain illegal behaviors related to the historical granting of stock options, and the district attorney agreed not to prosecute the company or its corporate subsidiaries for conduct related thereto. In addition, the company agreed to pay $300,000 to the District Attorney for reimbursement of costs related to the district attorney's investigation, to undergo a review of its corporate governance structure by external legal counsel, and to hire an administrator for its stock plan.

Detailed Summary:

According to the SEC, Take-Two defrauded investors by granting backdated, undisclosed “in the money” stock options to officers, directors, and key employees while failing to record required non-cash charges for option-related compensation expenses. See http://www.sec.gov/litigation/litreleases/2009/lr20982.htm.

Specifically, the SEC’s complaint alleged that on over 100 occasions from 1997 through September 2003, Take-Two looked back and picked grant dates for the company’s incentive stock options, resulting in grants of “in-the-money” options.

According to the complaint, Take-Two used several means to backdate options, including pre-priced option pools, backdating of employment agreements, and “pick-a-date” backdating, whereby a set exercise price for the grants was chosen,…

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