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The commission accused them of engaging in fraudulent accounting practices designed to inflate revenue, enabling the company to meet earnings forecasts and triggering the payment of ''substantial bonuses.''
Stephen Taub, CFO.com | US
June 13, 2005
Take-Two Interactive Software Inc., best-known for its blockbuster "Grand Theft Auto" series, and four executives have settled Securities and Exchange Commission charges stemming from an investigation into the company's accounting practices, which spawned three restatements.
The video-game maker — which, like the four individuals, agreed to the deal without admitting or denying any wrongdoing — will pay a $7.5 million civil penalty.
Former chairman and chief executive officer Ryan Brant agreed to pay a penalty of $500,000 and disgorgement and pre-judgment interest of more than $3.1 million; former chief financial officer James David Jr. will pay a $200,000 penalty and disgorgement and pre-judgment interest of $793,949; former executive vice president and chief operating officer Larry Muller consented to pay a penalty of $500,000 and disgorgement and pre-judgment interest of more than $1.2 million; and current vice president of sales Robert Blau agreed to pay a penalty of $50,000 and disgorgement and pre-judgment interest of $64,508.
The penalties may be distributed to harmed investors under a provision of the Sarbanes-Oxley Act.
In addition, David agreed to be barred from serving as an officer or director of a public company, and from appearing or practicing before the commission as an accountant, for 10 years.
The SEC accused Take-Two and the four individuals of engaging in fraudulent accounting practices designed to inflate revenue during the 2000 and 2001 fiscal years, enabling the company to "consistently meet or exceed" analysts' earnings forecasts for all four quarters of fiscal 2000 and to meet certain financial targets which triggered the payment of "substantial bonuses" to Brant, David, and Muller.
According to the SEC's complaint, Take-Two systematically recognized sales revenue from about 180 "parking" transactions in which the company, at or near the end of fiscal quarters or fiscal years, shipped hundreds of thousands of video games to distributors who had no obligation to pay for the product, "fraudulently recorded the shipments as if they were sales," and then accepted return of the games in subsequent reporting periods. In many cases, Take-Two created fraudulent invoices to disguise the returns as "purchases of assorted product."
Take-Two also improperly recognized sales revenue for games that were still being manufactured and could not be shipped, and in fiscal 2000, improperly accounted for the acquisition of two video game publishers, according to the Complaint.
The SEC asserted that Muller was the "principal architect" of the fraudulent parking transactions. It also asserted that David "knew about the fraudulent sales and parking transactions" during 2000 and 2001, including the disguising of returns as purchases of new inventory, and the impact of those transactions on Take-Two's reported financials.