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SEC Launches Take-Two Investigation 73

Posted by Hemos
from the hey-don't-belittle-paste dept.
crecente writes "Take-Two, already the subject of a Grand Jury inquiry, is now being 'informally investigated' by the Securities and Exchange Commission. This latest investigation looks at stock option grants made by the company from Jan. 1997 to the present. Just how many investigations can a publically traded company handle before their stock turns to worthless paste?"
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SEC Launches Take-Two Investigation

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  • by tygerstripes (832644) on Monday July 10, 2006 @10:39AM (#15691501)
    "It's okay folks, this is just an informal investigation (tm) so just, you know... go about your usual illegal activities, or whatever. Just pretend I'm not here."
  • The "article" doesn't say hardly anything about what the news is. Does anyone have a link with some details, like what kinda stock-granting issues are alleged? I initially felt bad for doodling on my Take-Two stock certificates, but they're probably worth more as artwork now...
    • Doesn't really need to. About every other company is currently being informally investigated for back dated stock options. For the most part investors understand that these inquiries will only lead to previous years finacial data being changed and have little to do with the future outlook of a company.

      Hold on to your doodle pads... take-two will be ok and they might be worth a lil more in the future
    • by Anonymous Coward
      This sort of thing happens all the time. Basically vulnerable companies are targeted by hedge funds who short the shares in the company. Then they work with their cronys among the media and regulators in order to create bad news (SEC investigations being one of them) in order to drive the stock price down.

      This is the battle that Overstock is going through right now. And Krispy Kreme and Vonage and Delta Airlines.

      You can read more about this at http://www.thesanitycheck.com/ [thesanitycheck.com], http://www.faulkingtruth.com/ [faulkingtruth.com] an
    • As bfizzle notes, just about every other company is being investigated, and those that aren't being investigated are doing some scrambling to investigate themselves.

      The reason is a study [uiowa.edu] published by Eirk Lie. The short story is he found that executives in many companies "happened" to receive stock options dated to the most recent low in the stock price. This "happened" at a much higher rate than dictated by chance alone. IOW it looked like many companies were backdating the date the options were granted to
      • The short story is he found that executives in many companies "happened" to receive stock options dated to the most recent low in the stock price.

        Wow, that's a loaded statement -- do you have a specific dislike for executives?

        From your comment, it appears that you don't understand much about how stock options work. Check out this Wikipedia article [wikipedia.org]. It explains a little bit about how strike price (or excercise price) works. In fact, most companies issue stock options at a strike price; these are not

        • Wow, that's a loaded statement -- do you have a specific dislike for executives?

          No, right or wrong that's just where most of the press seems to be focused. You're right that its an issue with anyone who receives stock options, or more specifically with any company that uses them for compensation.

          More often than not, this is not illegal or shady.

          As the article I linked stated, there is nothing wrong with it, as long as certain procedures are followed. Most notabley, everyone involved needs to be informed up-
  • Errr... "publically"? And "trade" when "traded" is meant?

    This needed cleaning up before posting
  • by Boone^ (151057) on Monday July 10, 2006 @10:43AM (#15691529)
    Score another one for http://www.sarbanes-oxley.com/ [sarbanes-oxley.com]. EETimes.com has been keeping a count of other companies in hot water for back-dating stock option grants at http://www.eetimes.com/scandal.html [eetimes.com]
    • Actually this is exactly what SOX is supposed to catch... i.e. your CEO is supposed to be following the rules and SOX will tell them they're not. Most of this stuff is pre-SOX anyway, but with SOX in place the management can't hide the accounting adjustment in "creative accounting" like they used to.. As far as back dated stock options, this is typical of how slow govt. works. There was a WSJ article a week or so about the stock option issue. The players that benefited most, M$ and other now-rich tech com
  • gotta love those sell shorts just before a story like this becomes public. I have been a long time follower of ttwo on the exchange since as far back as i can remember. Why have i been na avid trader and whatch htis one so close. simple,i am calm and can wait untill i know when DNF is ready to come. I hate to say it but the numbers are not looking good for them right now. I hate to say it but TTWO may get radioactive stat and no one will go near them, even if they did wrong or not. Will this effect the Du
  • "informal"? (Score:4, Insightful)

    by Iphtashu Fitz (263795) on Monday July 10, 2006 @10:54AM (#15691611)
    Since when does the SEC launch "informal" investigations, and more importantly, since when does the SEC acknowledge that they're investigating any company? The SEC is a bit like the Spanish Inquisition [mit.edu] (NOBODY expects the Spanish Inquisition!), in that you don't know they're investigating you until they come knocking on your door with subpoenas and start carting aways boxes full of corporate financial documents.
    • Since when does the SEC launch "informal" investigations, and more importantly, since when does the SEC acknowledge that they're investigating any company?

      Since roughly about .025 seconds after the ink dried on the legislation creating the SEC.

      The SEC is a bit like the Spanish Inquisition (NOBODY expects the Spanish Inquisition!), in that you don't know they're investigating you until they come knocking on your door with subpoenas and start carting aways boxes full of corporate financial

  • No Big Deal (Score:5, Insightful)

    by jjohnson (62583) on Monday July 10, 2006 @10:54AM (#15691614) Homepage
    The SEC has launched a very wide ranging inquiry that's touching virtually every major tech company from the 90s. The issue is the backdating of stock options to the stock's lowest price in the period, and how that was accounted for financially. It's not clear what's been done wrong by anyone, and looks like some fairly technical accounting issues will result in some fines for improper handling of the charges. Regardless, this is cleanup of the wild west 90s, when everyone was handing out options like candy. It says nothing about Take Two that it doesn't likewise say about every dot com.
    • The converse of this would be some companies that have employees holding thousands upon thousands of completely worthless stock options. Then of course the company boggles as to why giving them more is not working as an incentive. This company looks to have been trying to keep people by finding a way to turn worthless options into something with value. Good for employees, but bad if you don't handle the accounting right. And trying to make it so that it doesn't actually cost the company anything, but th
    • Regardless, this is cleanup of the wild west 90s, when everyone was handing out options like candy. It says nothing about Take Two that it doesn't likewise say about every dot com.

      I just had this mental image of the frontier town becoming "civilized" and having the new terrors of bankers, lawyers, and "the government" to fear instead of just frontier life. I'd guess that 70%-80% of all businesses started end in failure reguardless of time period. I'm going to say that it takes a good 5 years of both profit
    • Re:No Big Deal (Score:1, Informative)

      by Anonymous Coward
      The issue isn't the backdating of stock options, that is perfectly legal. The issue is the cover up, the companies never notified stock holders that the back dating occured. If the companies would have notified stock holders that they gave options to employees (primarily senior mgmt) which were back dated to optimal pricing (just prior to a major pricing move) then they would not be in legal jeopardy. However, the boards who represented the stock holders and approved the back dating would have been in anoth
  • How many? (Score:1, Funny)

    by Anonymous Coward
    Kids: Mr Owl, Just how many investigations can a publically trade company handle before their stock turns to worthless paste?

    Owl: Lets find out.
    One, *lick*
    Two, *lick*
    Three, *CRUNCH*.
    Three.
  • What pattern should an investor's thought pattern follow in this gray area of the law? Obviously one can surmise that a company under investigation could quite possibly have serious financial problems which they might be hiding, a la Enron et al.

    So does that mean that immediately upon hearing of investigatory action the investor in said company should dump all stock? Say they choose that route. Then the investigation reveals that the company was indeed breaking the law. Then it was a wise choice to dump
    • by badasscat (563442) <basscadet75@y a h o o . c om> on Monday July 10, 2006 @12:29PM (#15692304)
      So does that mean that immediately upon hearing of investigatory action the investor in said company should dump all stock? Say they choose that route. Then the investigation reveals that the company was indeed breaking the law. Then it was a wise choice to dump the stock. But what if the investigation reveals the company wasn't breaking the law? Does the stock then get a noticable, predictable bump? I am seriously asking these questions.

      It all goes back to the golden rule of investing, which is you buy stock based on the company, not based on the stock.

      If a company was hiding serious financial problems, serious investors would have known about it long ago and dumped the stock. It's really difficult to hide financial problems that are so bad that they actually adversely affect the long-term viability of a company. Companies can and do put spin on their financial results all the time, but to actually mis-state what would have to amount to billions of dollars worth of results would be pretty unthinkable. (It's happened in some high-profile cases, but it's hardly the norm.)

      In fact, TTWO *did* mis-state quite a bit of revenue a few years back, and they got caught and had to re-state. And it was a decent chunk of change, but it wasn't enough to affect the company going forward, so they took a bit of a hit and went on. Their stock was at 7 at that time but ultimately hit something like 31. If you were an investor who actually *bought* on the day they admitted wrongdoing, you would have come out nicely ahead.

      The reason being, of course, that fundamentally the company was still putting out good products that people were interested in buying. If, on the other hand, you knew that TTWO's games weren't selling - if Vice City had only sold 1 million copies, for example, and San Andreas only 500,000 - but they *still* were claiming record profits, then you would start to ask questions. But the bottom line is it's not the result of any *investigation* that should cause a stock to go up or down, it's what that investigation reveals about the company itself. You need to look beyond the superficialities.

      If the norm is that after a positive result, i.e. no law-breaking was found, the stock does not go up, then the only logical answer is to dump the stock no matter what when the investigation is announced.

      In other words, buy high, sell low, huh? That's not really a winning strategy.

      Good investors would have bought TTWO's stock after the negative results of the previous investigation, when everybody else was selling. Those people made out like bandits later on.

      A smart strategy, if you're a stock holder that still truly believes in a company after all these investigations, is to simply buy more stock when it drops. This way, you average your costs - if you bought your first stock at 12, and it drops to 8, you can buy enough that your average cost was 10. You'll make more money later, provided the company itself continues to do well.

      So in this respect whoever hears about the investigation first gets to lose the least amount of money. Which is to say, probably the company owners and employees. Is that insider trading?

      Yes, and it's illegal. And since everybody has to report their buys and sells, it's not really possible to get away with it under obvious conditions like this.

      And what of the possbility of a more secretive investigation? Because in this case it certainly seems like the company in question is essentially guilty until proven innocent, and possibly punished before any proof is found. This certainly seems to breach the idea of constitutional rights.

      What constitutional rights would those be? So the government is not allowed to investigate anybody because some stupid idiot shareholders decide to sell the first wind of it they get?

      Is there really any way to make this less damaging to the companies?

      Again, in what way is it damaging? Is this investigation into TTWO in any way affe
  • This is a maliciously motivated, willful misunderstanding of how software development is performed. The "offensive" data was disconnected from the main game, but not fully removed. The reason it wasn't removed is because, when you're that close to a drop-dead ship date, you don't suddenly start yanking out huge wads of data and code because that will invalidate all your testing to date, and you'll have to re-test the entire damned game, which you don't have time for. So they did the next best thing -- th
    • SEC is just concerned that you dot your i's and cross your t's with financial paperwork. Really, RTFA.
    • So instead of having a simple couple lines of code to include it back into the game, you obscure it to the point you can't access it. If you really want, you scrable the files themselves to the point you can't get them back.

      And what ever you do, you don't have an employee leak the code to get it back into the game. There's numerous games when certain stuff was taken out because of ESRB issues. The company I worked at has done it a couple times, not because they felt it was wrong, but because of a ESRB is
    • Which has nothing to do with the current SEC investigation, which involves stock fraud. It wasn't called stock fraud back then, it was just a nify way for board members to funnel cash to the executives without the direct knowledge of the shareholders. The biggest problem was that the practice undermined the explicit goal of stock options, which was to link the success of the compnay to the payment of the executive. Not a big deal, the people in charge lie to investors all the time, especially when those
    • Now I've seen off-topic replies and generated a few of them myself. But to confuse a SEC stock investigation with an unrelated ESRB issue? However, I'm generous, so let's doctor this post up with a reed thin connector:

      This is a maliciously motivated attempt by the SEC to prosecute a company based on a rabid assault from the Religeous Right. This theocractic government, not content with ESRB guidelines and FCC fines is going beyond the pale by trying to collapse the stock price even further. I think the
    • This is a maliciously motivated, willful misunderstanding of how software development is performed. The "offensive" data was disconnected from the main game, but not fully removed. The reason it wasn't removed is because, when you're that close to a drop-dead ship date, you don't suddenly start yanking out huge wads of data and code because that will invalidate all your testing to date, and you'll have to re-test the entire damned game, which you don't have time for.

      Which of course raises the question -

      • Which of course raises the question - if the code was not intended to be in the game (Take-Two had to know it exceeded their target rating), what was it doing commited to the main branch in the first place?

        Easter egg? Rogue developer? Shit happens.

        If there truly were no connections to it - it could have safely been removed *without* retesting.

        And if you could know something like that, you wouldn't need testing, now would you?

        The facts of the matter don't support any other conclusions than Take-T


    • Did you maybe mean to post your comment to a different story about Take-Two? I don't see anything in the story suggesting that the SEC investigation is in any way related to the presence of the "Hot Coffee" code on the media GTA was shipped on.

      To address your semi-OT point, I understand why Take Two didn't excise the code completely, but I also think they could have saved themselves a lot of trouble when they submitted the game to the ESRB for review. If they had said "early revisions of this game include
    • That being unused assets making games larger than they need to be. This is one of the thigns MS claims the Xbox 360 dev kit helps with. It supposedly helps you track down these unused assets so you can remove them from your game and get more space for ones that you are using on the DVD. Normally they just don't get the press that this one did.

      You can see it in other games though. In Civ 4 there's mods that enable so called "lost wonders" they have videos and everything. Basically, Firaxis decided to produce
    • Whether it was left in or not, the offensive material was so innocuous, that a 15 rated movie could exceed what is shown in "Hot Coffee".
    • This is a maliciously motivated, willful misunderstanding of how software development is performed ... This is government harassment, pure and simple.

      You are seriously mistaken, the rules are very different when you are putting your investor's money at risk. A company is legally required to inform investors of risks. Leaving content in a game that may result in product recalls, remastering and replacements, lawsuits, etc may be the sort of thing that investors have a right to know about. Having the SEC loo
  • how many? (Score:4, Funny)

    by revlayle (964221) on Monday July 10, 2006 @11:00AM (#15691657) Homepage
    "Just how many investigations can a publically trade company handle before their stock turns to worthless paste?"

    One... two... *CRASH* three

    It's three
    • thanks for the laugh :)

    • Re:how many? (Score:3, Insightful)

      by pimpimpim (811140)
      you know, I get the impression that in this case someone's really trying to spread FUD over this company. At least starting lots of investigations against it, at the same time, so the outcome becomes even more uncertain. Say, if they would have done this after the first one ended succesfully, then stockholders would be more secure about the outcome of the next one. But now, the uncertainity that they will survive all this is big, making people fear about their stock, and doubt about the feature. Seems like
  • Just how many investigations can a publically trade company handle before their stock turns to worthless paste?

    Um, 42?

  • Grand Jury * (Score:2, Interesting)

    by Anonymous Coward
    Not for nothing, but the Grand Jury will indict just about anything. They look at a case and see it as black and white. The evidence needed for them to pass down an indictment is minimal at best. They look at it as "is there anything?, if yes let the courts figure it out"

    I am pretty sure they could indict a wet paper bag if they felt the need.
  • If Only... (Score:2, Interesting)

    by Kurt Wall (677000)
    ...the SEC would target SCO's "interesting" stock option arrangements.
  • >Just how many investigations can a publically trade company handle before their stock turns to worthless paste?

    Gee, I dunno, let's ask Microsoft or IBM.

    If a company is financially strong, they'll shrug off investigations *even if* the allegations are found to be true. It's only when companies are already tottering, that investigations can make investors lose confidence.
  • For releasing Battlecruise 3000 AD upon the world - they are reaping what they have sown.

    • Big mistake, you shouldn't have said that. Don't go to sleep tonight, because Derek Smart is gonna be there to suffocate you with your own pillow.
  • by Mr. Underbridge (666784) on Monday July 10, 2006 @01:16PM (#15692647)
    Is that the name of their new game? Do I get to play a lawyer?
  • ... will come out of the woodwork. Within 24 hours, Jack Thompson will be screaming about how he's won his battle to utterly destroy Take Two. This won't destroy Take Two. If the SEC finds something, they'll pay a fine. Which means the new Tennis game will cost 50 cents more.
  • by dtfinch (661405) *
    Could this affect the release of Duke Nukem Forever?
  • Perhaps someone is trying to turn their stock into worthless paste. I'm sure there are plenty of people in government who would love to be morality police.

"Bureaucracy is the enemy of innovation." -- Mark Shepherd, former President and CEO of Texas Instruments

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