LA city attorney files Hot Coffee suit

Ever since the Hot Coffee scandal, Grand Theft Auto: San Andreas publisher Take-Two Interactive has taken a series of public and private hits. The company pulled the game from shelves, was the subject of a class-action lawsuit and FTC investigation, delayed the filing of its annual report with the SEC, saw one of its Manhattan offices scorched by fire, and had a member of its board of directors resign, leaving some choice words for the company on her way out.

Take-Two is dealing with more bad news today, as new litigation filed against it and an analyst downgrading the stock from "buy" to "sell" combined to send the company's stock tumbling.

Los Angeles city attorney Rocky Delgadillo announced yesterday that his office has filed suit against Take-Two Interactive, claiming the publisher "engaged in unfair business practices by hiding pornographic material in a game which received an M rating."

The suit alleges that Take-Two was fully aware of the Hot Coffee minigame when it made the game and that it manipulated the Entertainment Software Ratings Board rating process into giving the game an undeserved M for Mature.

While Delgadillo's complaint acknowledges that the Hot Coffee minigame can be played only with the help of a third-party program or device that violates the terms of Take-Two's end-user license agreement, it says that the company marketed the game "in a fashion that encourages the creation and use of mods" to boost its counterculture image and popularity.

As for what punishment Take-Two might face if found guilty of the allegations, the suit demands that Take-Two be ordered to relinquish all profits it made from sales of the game in the state of California "by affording restitution to the victimized public" and offering full refunds to customers. The city also wants the publisher and San Andreas developer Rockstar Games fined $2,500 apiece for each act of unfair competition or misleading statement under a pair of California business codes. Finally, the suit demands that Take-Two pay for the cost of Delgadillo's filing of the suit against them, and "such further relief as the court may order."

According to Delgadillo's statement, the suit is part of an ongoing investigation into the marketing of video games, though it's unclear what else the investigation entails. It bears mentioning that Delgadillo is currently running for another office, hoping to be elected the Attorney General of California this November.

The news didn't get any better for Take-Two today, as Banc of America Securities downgraded its investor recommendation on the company stock from Neutral to Sell, and it appears investors were listening. Take-Two stock was traded at more than 10 times its average volume today, shedding almost 14 percent of its value along the way, closing down $2.34 to $14.69.