Risk & Compliance

Spinout: Grand Theft Maker on Notice

The SEC slaps video-game maker Take-Two Interactive with two Wells notices in connection with past stock-option-granting practices.
Kate PlourdAugust 17, 2007

The Securities and Exchange Commission has told video-game publisher Take-Two Interactive that it may file charges against the company and its executives related to an investigation into the company’s historical stock-option-granting practices.

The game maker, best known for its “Grand Theft Auto” series, received two Wells notices from the SEC’s Division of Enforcement last week. The notices indicate that the regulator’s staff intends to recommend a civil action for possible violations of securities laws. The staff also disclosed it would seek a civil monetary penalty for the company. Take-Two said it would fully cooperate with the commission in the proceeding.

The company has already been hurt by the alleged backdating scheme. In February former chairman and chief executive officer Ryan Brant was convicted in New York state court of falsifying business records related to backdating stock options. The company’s former chief accounting officer Patti Tay and former general counsel Kenneth Selterman also took a hit in July when they pleaded guilty to falsifying company records. Each executive avoided jail time on the convictions, with Brant ordered to pay $7.2 million in restitution; Selterman sentenced to three years of probation, 200 hours of community service, and a $50,000 fine; and Tay ordered to disgorge $30,000 to Take-Two.

Chief financial officer Karl Winters stepped down from his post in April. His resignation came 10 days after a group of dissident investors unseated five directors who were nominated by the former management. As part of his severance, Winters consulted with the company for three months for $25,000 a month. He will also receive his $405,000 base salary, a target bonus of 50 percent of his base salary, and health benefits for 18 months following his resignation.