Take-Two sued, confirms FTC investigation

[UPDATE] As the feds circle, San Andreas TV ads are pulled, and a class-action lawsuit against the publisher is filed in US District Court.

The Hot Coffee scandal advanced on two fronts today.

First, the parent company of Grand Theft Auto: San Andreas publisher Rockstar Games, Take-Two Interactive, confirmed that its advertising practices were indeed the subject of a Federal Trade Commission inquiry. On Monday, the US House of Representatives voted overwhelmingly in favor of such an investigation.

Specifically, the FTC's Division of Advertising Practice is looking into how San Andreas was promoted, and to whom, to determine if Take-Two was culpable in misleading the public. The company said it "intends to fully cooperate with the FTC inquiry, and believes that it acted in accordance with all applicable laws and regulations."

The Take-Two statement went on to say that Rockstar and Take-Two "regret that consumers may have been exposed to content that was not intended to be accessible in the playable version of Grand Theft Auto: San Andreas." However, Take-Two reiterated its contention that the Hot Coffee code was the result of a "third-party modification."

Despite such admonishments, Take-Two is facing legal trouble of another kind...in civil court. This morning, according to the Associated Press, a lawsuit was filed against the publisher in the Southern District of New York. According to the AP, plaintiff Florence Cohen claims she was "damaged" after learning of the sex minigames hidden in San Andreas, as she had bought what she thought was an M-for-Mature-rated game for her grandson.

Her complaint seeks class-action status for purchasers of San Andreas and relies on four causes of action; the complaint accuses Take-Two of committing or engaging in "Consumer Deception" (based on New York State General Business Law statutes, section 349), "False Advertising" (based on New York State General Business Law statutes, section 350), "Common Law Fraud," and "Unjust Enrichment."

Damages sought are in excess of $5 million, the complaint says. Cohen is seeking a jury trial to determine culpability.

Ironically, the charges of "false advertising" come as television spots for San Andreas continue to run. This week, GameSpot editors saw firsthand 30-second TV ads for the Xbox version of the game running on Comedy Central and MTV, both owned by media giant Viacom. The ads have been altered since the ESRB revoked the game's M rating last week, ending with the words "Rated AO for 'Adults Only.'" [UPDATE] Some gamers took this as a sign of defiance on the part of Rockstar. However, a representative for the publisher told Gamespot the ads were from a media buy made prior to the FTC investigation, and would stop running as of today.

Even before today's developments were known, one industry analyst said Take-Two is facing "headline and regulatory risks" as a result of the Hot Coffee scandal. In a memo to investors, UBS' Mike Wallace said the danger to Take-Two will persist until resolution is reached. "Whether or not the inquiry results in a penalty (that is, a fine) remains to be seen," Wallace said, "but if GTA needs to get reworked, this may impact the consumer appeal of the game going forward." From a purely financial perspective, Wallace said he believes the "numbers for TTWO could be at risk over the next few quarters."

At press time, Take-Two was trading up just over a dollar at $24.63.

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