Take-Two suing former execs for fraud

Federal judge rules former CEOs and CFOs must defend themselves against claims of securities fraud for allegedly backdated stock options.

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Though its last earnings report showed it is righting itself financially, Take-Two Interactive still has an axe to grind. To be exact, it has an axe to grind with four former executives who helped run the company during the previous decade. Reuters reports that a federal judge in New York has given the go-ahead for the owner of Grand Theft Auto developer Rockstar Games to sue its onetime leaders for securities fraud related to backdating stock options.

GTAIV's Niko Bellic used a gun to get his ill-gotten gains. Ex-Take-Two execs are accused of using backdated stock options.
GTAIV's Niko Bellic used a gun to get his ill-gotten gains. Ex-Take-Two execs are accused of using backdated stock options.

US District Judge Laura Taylor Swain reportedly said that Take-Two could proceed with the suit, as the "company specifically identified the alleged improperly backdated option grants and sufficiently alleged the defendants had an intent to deceive or defraud." (She dismissed several other claims that she deemed had been filed too late.) Exactly one year ago, Take-Two paid the Securities and Exchange Commission $3 million in a settlement that ended the investigation into the company.

The suit's defendants include ex-Take Two CFOs Larry Muller and James David and former CEOs Kelly Sumner and Ryan Brant. In February 2007, Brant pled guilty to first-degree felony charges of falsifying business records for his role in the publisher's stock-option backdating scandal. Brant left the company in October 2006, while Take-Two was the subject of an investigation by the Securities and Exchange Commission. Three months later, the publisher released the results of its independent investigation into the scandal and pinned the blame squarely on Brant.

Former CEO Ryan Brant gets his perp walk on.
Former CEO Ryan Brant gets his perp walk on.

The SEC found that from 1997 to 2003, Brant granted stock options to himself and other employees and altered the records regarding when the options were granted in order to make them instantly profitable to the receiver. In August 2007, he struck a plea deal that allowed him to avoid jail time. As part of his deal, Brant agreed to pay $6.3 million to settle the SEC's civil suit against him and another $1 million to New York state and local authorities. Take-Two's suit against him could make him liable for further monetary penalties.

During the 2000s, more than 200 US companies were accused of backdating stock options, including former GameSpot parent company CNET Networks.

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