Last week, Take-Two Interactive notified shareholders that the Securities and Exchange Commission was conducting an informal investigation into the company regarding some stock option grants it made in the past decade. Today, word emerged that an Activision shareholder has filed suit against the publisher in Los Angeles Superior Court over its own stock option grants.
The Activision suit, brought on behalf of the company by shareholder Ryan Vazquez, charges 16 current and former Activision senior executives with improperly adjusting their stock option grants to their own benefit and to the company's detriment.
The way most of the company's stock option grants work is that on the day grant is made, the employee receiving it gets the right to buy a limited amount of stock within a limited time frame at the low-bid price from that day. The suit alleges that Activision executives were issued these grants and then fudged the books to make the issuing dates occur when the stock was at a low point. As a result, the price the employees pay to turn those options into actual stock is much lower, and the company gets less money for those shares.
Vazquez alleges that an array of Activision executives, including CEO Robert Kotick, breached their obligations to their shareholders by regularly backdating stock options between 1995 and 2004. As evidence, Vazquez points to more than 80 stock option grants made to the defendants over that period of time and what kind of growth the stock price saw in the 10 days following the purported grant of options. In some of the instances the stock price went up a few percentage points over what the defendants could pay for it, but some grants were made just before the company experienced growth spurts. In one case, the stock jumped up to 147 percent of what the executive's stock option said he could purchase it for within 10 days of the grant being made.
The lawsuit claims that the "extraordinary pattern" of stock surges immediately after the option grants were made is due to the grants being backdated. Vazquez's complaint says the alleged backdating "improperly increased the value of the options to the officer defendants and improperly reduced the amounts they had to pay the company upon exercise of the options." As a result, Vazquez contends the defendants violated the terms of the stockholder-approved stock option plans, failed to recognize the extra compensation expenses, and lied to shareholders and the Securities and Exchange Commission to hide their actions.
Vazquez said the executives' actions cost the company millions of dollars in damages. On behalf of the company, Vazquez is demanding that the defendants pay for damages and legal costs, give up stocks and money gained from the contested options, and provide "equitable relief" for violating their duties to shareholders.
As of press time, Activision representatives had not returned requests for comment.