Publisher stock option scandals drag on

THQ finds no evidence of fraud, but lapses in accounting cost it $11 million over 10 years; Activision tweaks executive benefits to limit consequences.

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A number of game publishers are currently facing lawsuits from their own shareholders and investigations from the Securities and Exchange Commission over alleged stock option scandals. This week, two such publishers--THQ and Activision--have taken steps to resolve their issues.

THQ today announced that an independent committee appointed by its board of directors found no evidence of fraud or misconduct on the part of the company. However, the committee did find that the company's accounting standards had not been properly upheld in a number of instances. From January 1996 through March 2006, the committee found that the company had underreported the value of stock options granted to employees by $11 million. THQ said in a statement that most of that shortfall was related to grants for employees outside of its executive ranks.

THQ didn't say how it expects this finding to impact the shareholder lawsuit it currently faces, but the publisher did say once it catches up on financial filings that were delayed for the course of the investigation, it should regain compliance with the Nasdaq Stock Exchange requirements.

While its own stock option scandal investigation is not yet complete, Activision yesterday told the SEC in a filing that it believes there have been irregularities with some of its stock option grants. To address "potential adverse consequences," the publisher's officers and directors have agreed that any of their stock option grants found to have inappropriately inexpensive exercise rights will be readjusted to their proper amount.

The publisher also removed a clause from the contracts of CEO and chairman of the board Robert Kotick and cochairman Brian Kelly that would require their options to be repriced in the event of a change in control of the company.

Wedbush Morgan Securities analyst Michael Pachter painted the news as good for both THQ and Activision and a sign that they are close to resolving their stock option issues and putting the scandals behind them.

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