Take-Two feels heat in $$ scandal

  • By Curt Feldman, GameSpot
  • Posted Dec 11, 2006 5:40 pm PT

Special committee looking into back-dating of stock options discovers "improprieties" and "incorrect measurement dates;" company will restate earnings for past 10 years.

The execs at Grand Theft Auto publisher Take-Two Interactive Inc. suffered yet another public humiliation. In documents filed with the Securities and Exchange Commission (SEC) today and in a statement released to the public, investors, and the press, the Grand Theft Auto and Bully publisher outlined the conclusion of an internal investigation designed to ferret out wrongdoing related to the granting of stock options.

The ferret has spoken, and it has smelled a rat.

In a statement, the company said that an independent committee found "there were improprieties in the process of granting and documenting stock options and that incorrect measurement dates for certain stock option grants were used for financial accounting purposes."

The company said it will need to "restate historical financial statements to record non-cash charges for compensation expense relating to past stock option grants," and that "all consolidated financial statements, earnings releases and similar communications issued by the Company containing financial information for periods beginning 1997 through April 30, 2006 should no longer be relied upon."

According to the statement, the internal investigation--which could negate the financial reporting of Take-Two for the past 10 years--found no misconduct by either CEO and president Paul Eibeler or CFO Karl Winters.

Along with more than a hundred other publicly traded companies (including CNET Networks, the owner of GameSpot), Take-Two is under investigation by the SEC for practices related to the granting of stock options, specifically the back-dating of options, a practice that is designed to circumvent SEC rules and invariably puts more money into the pockets of a select group of company officials. Today's statement has no impact on that still-ongoing investigation announced in July.

The publisher is no stranger to the SEC, recently paying $7.5 million to settle an SEC lawsuit brought in 2005. The SEC alleged the company had overstated financial results from 2000 to 2001.

Today's news, released before the markets opened, erased Friday's uptick. On Friday, shares in the company rose 2.9 percent to $20.10 for the day; today, Take-Two shares shed 2.4 percent, closing at $19.66.

Financial writer Herb Greenberg stated in his MarketWatch blog today, "When you see such blatant wrongdoing, you can't help but wonder (with any company) where else the company might have been acting too aggressively for its own good...[and yet] investors continue to flock to Take-Two (and other stocks) as if all is well in its (their) world. Remarkable."

86 Comments

  • theKSMM

    Posted Dec 14, 2006 6:32 am PT

    The issue here isn't about the games Take Two makes or even about the company as a whole. It's about a few greedy people with access who may have tried to line their pockets at the expense of their shareholders, employees, and customers. This isn't a witch hunt. If certain executives did use back-dating tactics, they've hurt the company as a whole, and they deserve to be punished.

  • evilbreader

    Posted Dec 12, 2006 11:05 pm PT

    hear we go hopefully this wont turn into another Tyco, or Enron scandle. and if it dose it will be the end for many good games like oblivion, grand-theft-auto,and manhunt, if it is jack thompson would have finaly won this battle with take-two but the war would go on because he would start targeting others like EA or Ubsoft then down the line to konomi and capcom untill it would become almost meeningless to even worry about wich gaming platform is the best system to have next thing you know that 1,200 doller ps3 or that 400 doller 360 becomes a real nice looking decative peace that just sits in the entertainment center collecting dust.

  • wenbin09

    Posted Dec 12, 2006 7:42 pm PT

    This is really bad.. disrupting the harmony of the company i suppose~

  • Talgrath

    Posted Dec 12, 2006 6:00 pm PT

    "This is just someone trying to mess with take two. You have other gamemakers how love to get there hands on the G.T.A. codes and all the other games in Take Two's Library if they fall."

    No, this is white collar crime and the SEC has been cracking down on it since Enron across the board. As much as I think Take Two puts out some great games, if they broke the law they should be punished for it.

  • BraindeadRacr

    Posted Dec 12, 2006 3:15 pm PT

    "The ferret has spoken, and it has smelled a rat."
    Isn't it, The ass has spoken, and it has smelled a rat."?

    We'll see what happens in July.

  • josephmadde2005

    Posted Dec 12, 2006 2:34 pm PT

    The Grand Theft Auto publisher cooking the books? Is that Irony?

  • TintedChimes

    Posted Dec 12, 2006 11:35 am PT

    Lame...but once grand theft auto 4 pops out then it'll be over...WII60!!!!

  • Black_Knight77

    Posted Dec 12, 2006 11:07 am PT

    Bah, we'll see what exactly they did wrong later, when the investigation will be over

  • chrisdojo

    Posted Dec 12, 2006 10:11 am PT

    LOL 10 yrs?!?!?!????

  • wrect

    Posted Dec 12, 2006 9:52 am PT

    I acknowledge that back-dating options may be a violation of SEC regulations and GAAP. However I believe that Take-Two should just get away with it, because I enjoy the games that they publish.

    Signed: Shrill, Blow-Hard Gamer

  • reddlibra69

    Posted Dec 12, 2006 9:36 am PT

    This is just someone trying to mess with take two. You have other gamemakers how love to get there hands on the G.T.A. codes and all the other games in Take Two's Library if they fall.

  • Zer0mancer

    Posted Dec 12, 2006 9:22 am PT

    Yes... princeofgames90.. I'm sure the entire SEC staff has a personal beef with Take Two. The SEC does not "pick on" companies, if they are under close srutiny by the SEC it is their own fault for not abiding by the GAAP rules set up that EVERY company has to follow.

  • goddessakasha

    Posted Dec 12, 2006 9:20 am PT

    lol @ "entron"

  • Kikuchio

    Posted Dec 12, 2006 9:14 am PT

    I can see it now...the entron scandal.

  • DarthKalo

    Posted Dec 12, 2006 9:05 am PT

    Thanks for the heads up GS.

  • ChucklesMginty

    Posted Dec 12, 2006 9:02 am PT

    Don't these scumbags ever stop sueing and accusing.

  • KBFTodd

    Posted Dec 12, 2006 8:37 am PT

    That's too bad....there is plenty of money to be made in gaming, but some people would rather do things....................differently......

  • princeofgames90

    Posted Dec 12, 2006 8:35 am PT

    No there always picking On take two

  • Sheiko

    Posted Dec 12, 2006 8:22 am PT

    No no Take Two Owns Rockstar(s) depending on which one North or the other which developed GTA. This is Very bad news for GTA fans worldwide.

  • GFofgaming

    Posted Dec 12, 2006 8:11 am PT

    Damn........I dont get a thing!

  • peeweeshift

    Posted Dec 12, 2006 7:46 am PT

    take two created gta :O

  • LessThanMike

    Posted Dec 12, 2006 7:13 am PT

    well i guess as long as nobody stole any coding we're okay...hehe

  • MSE369

    Posted Dec 12, 2006 7:09 am PT

    good job for making us feel secure gamespot!

  • cjcr_alexandru

    Posted Dec 12, 2006 7:09 am PT

    Hope that doesn't affects them too much. I want GTA 4!

  • dragonsama

    Posted Dec 12, 2006 6:14 am PT

    You know I I've never played

    By Curt Feldman, GameSpot wrote:
    Grand Theft Auo
    but I might have to try it.

    Seriously Gamespot you might want to spell check the stories you post.

  • AtomicEdge

    Posted Dec 12, 2006 6:04 am PT

    Nice one Gamespot

    "Along with more than a hundred other publicly traded companies (including CNET Networks, the owner of GameSpot), Take-Two is under investigation by the SEC for practices related to the granting of stock options,"

    Thats such a good way to stop the fools going "OMZFGL GS is being inv3stigated t00! LOLZROFL".

  • Zumafire

    Posted Dec 12, 2006 5:44 am PT

    Another day another white collar scandal... News like this gives us more insight into the industry... Good job GS!

  • lord-azrael

    Posted Dec 12, 2006 5:42 am PT

    funny if Cnet found guilty or whatever

  • Cloud737

    Posted Dec 12, 2006 5:32 am PT

    "Along with more than a hundred other publicly traded companies (including CNET Networks, the owner of GameSpot), Take-Two is under investigation by the SEC for practices related to the granting of stock options, specifically the back-dating of options, a practice which is designed to circumvent SEC rules and invariably puts more money into the pockets of a select group of company officials."
    Lol, I wasn`t expecting GS to say anything like that. A first step towards more sincerity and objectiveness I hope. I really admire the fact that they didn`t try to hide it.

  • Sarboras

    Posted Dec 12, 2006 5:04 am PT

    Very nice, diablos101.

  • diablos101

    Posted Dec 12, 2006 4:41 am PT

    i guess its financial doucments 97-06 take two

  • DarkLord500

    Posted Dec 12, 2006 4:38 am PT

    Hope this doesnt effect future GTA games at all. I didnt really understand that jargon lol!

  • JSharpe_187

    Posted Dec 12, 2006 4:10 am PT

    I feel it's kind of funny that of all the crimes out there, like murder and robbery, Take-Two is being accused of a white collar crime. Not like San Andreas at all...

  • jojoforpres

    Posted Dec 12, 2006 4:10 am PT

    Take-Two didn't create anything; they are not a software development company. They paid for the packaging and distribution of Grand Theft Auto that is all. This is an overblown story.

  • KingofTrolls

    Posted Dec 12, 2006 4:04 am PT

    Grow up and leave Take-Two alone for crying out loud. You wanna bug someone go bug EA Games, they have more fraud there then anyone else. Stock Options are such a waste of money and investing in them can be dangerous. I FEEL THE STOCK MARKET SHOULD BE ILLEGAL CAUSE IT FOLDS COMPANIES AND ITS WORSE THEN GAMBLING.

  • -HCMF-

    Posted Dec 12, 2006 3:57 am PT

    sad

  • sugreev2005-06

    Posted Dec 12, 2006 3:55 am PT

    I really wish that they get out of this dump soon and produce quality games like they used to.They should supersede EA and Activision to become the largest publisher in video games.

  • jimmy_bean

    Posted Dec 12, 2006 3:51 am PT

    Created the greatest gaming series in history, my ass. They created a semi realistic world ( i use that loosely) in which u can do whatever(thats not even accurate) u please. Wasnt all that creative, tho i do give them credit for pulling it off in a reasonable fashion.

  • CDWJUSTIN

    Posted Dec 12, 2006 3:32 am PT

    Common take-two WTF u cant be doing crap like this it can effect our market place that can inturn effect the games u produce or dont produce...

  • datniccah187

    Posted Dec 12, 2006 2:43 am PT

    Foreget it. They developed Grand Theft Auto, they can do whatever they want to do. Long as they keep the games coming.

  • gagan21

    Posted Dec 12, 2006 1:59 am PT

    leave them, they are 1 of the best developers in gaming world, just leave them , they are the ones who brought us the greatest series in gaming history called GTA, dont worry take two , just bring out gta 4 and make thier mouths shut

  • Mkeegs79

    Posted Dec 11, 2006 10:48 pm PT

    This will have no affect on their business. The stock market results for Take-Two proves it.

  • chickmagnet_1

    Posted Dec 11, 2006 10:33 pm PT

    Hey, maybe if they keep screwing up, it will mean no more subpar GTA games. Oh finally!!!!!

  • Yazu13

    Posted Dec 11, 2006 10:09 pm PT

    Man, Take-Two's going to go under with all of the crap that's been flying their way.

  • watchcity

    Posted Dec 11, 2006 9:34 pm PT

    duncanr2nm you are right in that the problem lies in timing, but you are wrong with the whole SEC approval stuff. SEC approval has nothing to do with the measurement date of stock options. The measurement date is the date the board approves the options grant and the grant has been communicated to the employee. For example, if a new hire is granted 5000 shares subject to board approval in their offer letter, once the board approves the grant, that is the measurement date. (I am an accountant working on a company's stock option restatement as we speak).

  • Riverwolf007

    Posted Dec 11, 2006 9:29 pm PT

    Who is taking care of the books around there, Ken Rosenberg?

  • burrfoot

    Posted Dec 11, 2006 9:14 pm PT

    This is not a problem unique to Take-Two. If you see the Wall Street Journal you will see this is a rampant problem across many many publicly traded companies. Home Depot just announced the same problem in the past week dating back to 1981. Doesn't make it right just wanted people to realize this is not unique to them.

  • Brian_WCU

    Posted Dec 11, 2006 9:09 pm PT

    Just what the gaming world needs.

  • VegetaMaelstrom

    Posted Dec 11, 2006 9:03 pm PT

    These heinous acts are being labelled as " incorrect measurement dates for certain stock option grants". Unbelievable. These execs were stealing money and are now using the excuse "it wasn't our fault, it was just a big mistake with back-dating stock options which just coincidentally maximized our profit margin! We're completely innocent, just ask the commitee we handpicked to look into this irregularity!" Just like Ken Lay didn't know ANYTHING about Enron's criminal accounting practices which he made millions on. *shakes head* .
    .
    I'm really hoping the SEC lays down the hammer and that eventually some of these execs see some jail time at some point. Along with a horny cell-mate named Bubba.

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