Take-Two confirms backdating

Independent investigation blames ex-CEO for "significant" mishandling of stock-option grants from 1997 to 2003; says current executive suite is clean.


Last year, the Securities and Exchange Commission launched investigations of various high-profile game publishers, including THQ and Activision, for backdating stock options. As a result, many of those publishers hired external auditors to conduct independent investigations to head off any official sanctions from the federal government.

Now, just over a month after it first admitted financial "improprieties," one of the biggest publishers under investigation confirmed it backdated options in the late 1990s and early 2000s. Today, Take-Two Interactive conceded that it had "failed in many cases to comply with the terms of its stock option plans" by allowing its founder and former CEO Ryan Brant "to control and dominate the granting process."

In its latest filing with the SEC, Take-Two says an independent investigation conducted by the national civil legal firm of Kasowitz, Benson, Torres, & Friedman puts the blame for the backdating squarely on Brant's shoulders. The firm reviewed nearly 400,000 e-mails and interviewed more than a dozen executives to come to its conclusion.

"Between April 1997 and August 2003, Mr. Brant engaged in a pattern and practice of backdating options, and during such period, a significant number of option grants appear to have been backdated," read Take-Two's report. One of Take-Two's founders, Brant stepped down in March 2004, assuming the role of vice president of publishing. He left the company in October 2006, after being officially on disability since June. Take-Two's initial public offering was in 1997.

Take-Two also said the independent investigation found "no pattern" of any backdating from August 2003 to the current day. It also said there was "no evidence" the company's current CEO and CFO, Paul Eibler and Karl Winters, "engaged in any misconduct with respect to the company's option granting practices."

As a result of the backdating, the company believes it will incur additional expenses and "tax consequences." Take-Two said that will mean changes to its past and current financial reports--all of which will have to be reviewed by its auditing team.

But Take-Two taking some blame doesn't mean it is out of the woods yet. The official SEC backdating investigation is still ongoing, and the oversight body threatened the publisher with NASDAQ delisting for nondisclosure of finances just this morning. (Such threats, however, are not uncommon.)

After falling on the announcement of the SEC investigation and backdating admission, Take-Two share price had risen $0.05 (0.29 percent) to $17.54.

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