SEC Launches Take-Two Investigation 73
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?"
One in a long line... (Score:4, Informative)
Re:No Big Deal (Score:1, Informative)
Re:Thoughtful investing? (Score:4, Informative)
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
Re:Does anyone have more info? (Score:3, Informative)
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 favor the grantee -which may be a violation depending on whatever rules the company has in place regulating such things. Lie's study showed this may be a very widely used method of granting options -thus many company's are being investigated.
Re:Does anyone have more info? (Score:3, Informative)
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 just offered to executives, but to employees too. This is especially nice when options mature over a number of years. Stock options are supposed to be a benefit to the employee (including executives). If the company gains value, employees can get in and excercise their options at the lower (strike) price that they were initially offered to the employee at. There is nothing illegal, dirty, or immoral about this practice -- just as long as the company bi-laws do not prohibit the practice.
Offering stock options at a specific strike price has been going on for a long, long time. (much) More often than not, this is not illegal or shady.
Re:Does anyone have more info? (Score:3, Informative)
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-front that this is the way the company is doing it. Many of the informal SEC investigations are simply asking to see documentation that shareholders were properly informed and financial statements properly accounted for the issue. AFAIK, if that's done, the investigation is over.