SEC examines Activision

Earlier this month, Take-Two confirmed that the Securities and Exchange Commission (SEC) was launching an informal investigation into its stock option practices. Two weeks later, one of the company's shareholders filed suit against it, alleging that executives improperly "backdated" a number of stock options over the course of nine years, among other transgressions.

Activision has found itself in a similar situation, albeit in a reversed order. The publisher was sued by one of its shareholders for allegedly backdating stock options earlier this month, but it wasn't until Friday that the SEC got involved. In a regulatory filing, Activision confirmed receipt of a "letter of informal inquiry" from the SEC for documents and information about the publisher's stock option grant practices.

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.

Activision has said it will cooperate fully with the SEC inquiry, and is conducting an internal review of its past stock option grants.