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Take-Two Settles Over Stock Options, Pays $3.3 Million

Take-Two Settles Over Stock Options, Pays $3.3 Million

April 2, 2009 | By Eric Caoili

April 2, 2009 | By Eric Caoili
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Take-Two Interactive announced that it reached two separate settlement agreements totaling $3.3 million with the Securities and Exchange Commission and the New York County District Attorney concerning investigations into the Grand Theft Auto publisher's stock option granting practices and allegedly falsifying its reported income.

Take-Two noted that it does not admit or deny the SEC's allegations that it defrauded investors by "granting backdated, undisclosed 'in-the-money' stock options to officers, directors, and key employees" during the 1997 to 2003 period while failing to record "required non-cash charges for option-related compensation expenses".

The company agreed to pay a civil penalty of $3 million, stipulating an injunction against future violations of the federal securities laws. The settlement is awaiting approval with the United States District Court for the Southern District of New York, and if approved, will conclude the SEC's investigation with the company.

As part of its settlement with the District Attorney, the publisher acknowledges that several of its former directors and officers were involved with "illegal behaviors related to the historical granting of stock options". Under the agreement, the District Attorney agreed not to prosecute the company or its corporate subsidiaries for the illegal activity.

Take-Two also agreed to pay $300,000 to the District Attorney to reimburse costs related to the latter's investigation. The company previously accounted for these estimated expenses with the District Attorney and SEC in its fourth quarter of fiscal 2009.

The alleged "architect of the fraudulent options backdating scheme", former CEO and chairman Ryan Brant, previously paid $6.3 million in his settlement with the SEC, consenting to a permanent bar from serving as an officer or director of any public company. He also pled guilty to felony criminal charges of Falsifying Business Records in the First Degree, paying some $1 million in fines and forfeiture to state and local New York authorities.

Separate civil litigation related to Take-Two's stock option granting practices still remains unresolved.

“We are pleased to have reached a settlement with both the SEC and District Attorney with respect to the Company’s historical stock option granting practices,” says Take-Two's current chairman Strauss Zelnick. “Resolving this issue has been a key objective for Take-Two since the current management team took office in early 2007, and we are gratified to have put this matter behind us.”


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