Risk Management

“Grand Theft Auto” Founder Eludes Prison

The onetime whiz-kid founder of Take-Two Interactive avoids going to prison for the role he played in backdating options
Stephen TaubAugust 2, 2007

The first CEO convicted for his role in a stock-option backdating scheme was sentenced to five years of probation, according to Bloomberg. Former Take-Two Interactive Software Inc. chief executive Ryan Brant pleaded guilty in February to falsifying business records.

Under his plea deal with Manhattan District Attorney Robert Morgenthau, Brant, 35, was able to avoid prison time in exchange for cooperating with an investigation of illegal backdating at the company, said wire service. “I’m deeply sorry for my role as an executive in the company and my role in the options dating process,” Brant reportedly told New York State Supreme Court Justice Brenda Soloff Wednesday morning. Brant had faced up to four years in prison.

Under the plea bargain, Brant, who founded the company best known for its “Grand Theft Auto” video game when he was 21, is barred from holding any “control management positions” in public companies, including director or officer, according to Bloomberg. Last October, Brant resigned from a non-executive position. In 2005, he agreed to pay more than $3.6 million while Take-Two agreed to pay $7.5 million to settle a Securities and Exchange Commission complaint that it overstated results from 2000 to 2003. In February, Brant pleaded guilty to the criminal charges. He agreed to pay $1 million to the city and state of New York.

In December, Take-Two said it would restate its results for the past 10 years after a special committee of the board found “improprieties” in the process of granting and documenting stock options and that incorrect measurement dates for stock option grants were used for financial accounting purposes. At the time, the company noted that its internal investigation did not find misconduct by its executive officers, including chief executive officer and president Paul Eibeler and >then-CFO Karl Winters.

>In January, the company pinned its troubles on Brant.. According to a regulatory filing at the time, a Take-Two special committee determined that the company’s compensation committee “abdicated its option granting responsibilities” and permitted Brant “to control and dominate the granting process.” The filing explained that between April 1997 and August 2003, Brant “engaged in a pattern and practice of backdating options.” During the period, “a significant number of option grants appear to have been backdated.”

Take-Two’s filing added, however, that the special committee uncovered no such irregularities since that time. “The company, in granting options, failed in many cases to comply with the terms of its stock option plans, did not maintain adequate control and compliance procedures for option grants, and did not generate or maintain adequate or appropriate documentation of such grants,” stated the financial report.