New suit for Take-Two suits

Investor sues executives for "breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment," in addition to backdating stock options.

Take-Two Interactive may have put one controversy behind it last week, but another one has sprung up to take its place.

According to court records, on July 12, Take-Two shareholder Richard Lasky filed a lawsuit against its officers and directors. The 110-page complaint alleges "breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment" since January of 2000. It also contends that the executives improperly "backdated" stock options since 1997.

When executives are granted stock options, they're given the right to buy shares in company stock at a fixed price, with the right to exercise those options--buy the shares--over a predetermined period of time. The price is set based upon the stock's current market value at the time the options are issued. Recently, a number of corporations have come under investigation for having executives backdate their options, altering the records of when the options are issued to a low point for the company stock, thus maximizing their value.

Earlier this month, the Securities and Exchange Commission announced it was starting an informal investigation into Take-Two regarding its stock option grants since 1997. Also this month, an Activision shareholder filed suit against that publisher's current and former executives for backdating stock options.

On top of the backdating, Lasky accuses some of the executives of illegal insider selling, claiming they walked away with $31.77 million between them. Lasky points to the company's multiple restatements of its financial figures and a previous SEC investigation that ended with the company paying a $7.5 million penalty as evidence of a trend.

The oft-mentioned Grand Theft Auto: San Andreas "Hot Coffee" mod is also brought up, as the defendants are accused of conspiring to keep information about the sexually explicit mod from the Entertainment Software Ratings Board and consumers to keep Take-Two's stock price from falling.

And while he doesn't suggest the defendants illegally profited off the transaction, Lasky does bring up on multiple occasions a stock-buyback program initiated while the company's share value was in decline. That program cost the company $876.5 million, according to the suit.

"This continuing decline in the quality and accuracy of Take-Two's financials is further indicative of the defendant's conscious disregard for the company's welfare. Indeed, defendants appear to be more interested in looting the company via the illegal repricing of stock options, rather than issuing accurate and truthful financials."

Lasky originally demanded the company's board of directors take legal action against the defendants over the alleged abuses in March but that the board ignored his demand. In a letter to Take-Two chairman of the board Robert Flug dated March 28, 2006, Lasky's lawyers wrote:

"It is time for Take-Two to be made whole and liberate itself from the selfish, imprudent governing to which it has been subjected..."

The legal proceedings should seek recovery of illegal insider sales proceeds, as well as millions of dollars in salaries, bonuses, retirement benefits, and long-term compensation paid to directors and officers for a job not well done."

As of press time, Take-Two had not responded to GameSpot's request for comment.

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