Thursday, February 15, 2007

Grand Theft Shareholders

Ryan Brant, the founder and former CEO of Take-Two Interactive Software Inc., which inflicted the "Grand Theft Auto" videogame on the world, entered a guilty plea and settled an SEC action related to options backdating.  Brant resigned as CEO of Take-Two in October 2006, as the company's internal investigation of its options practices reached a conclusion, and now admits to having received a large slug of options with favorable strike prices based on after-the-fact selections of the issuance date over a seven-year period.  The SEC settlement calls for Brant to pay disgorgement of $4,118,093, prejudgment interest of $1,143,513, and a $1,000,000 civil penalty (see SEC Litigation Release here).

The criminal part of the case involves a new, but familiar, sheriff on the options backdating beat: Manhattan DA Robert Morgenthau.  His office is well-known for its involvement in various white collar crime cases, including the recent prosecution of former Tyco CEO Dennis Kozlowski and former CFO Mark Swartz on larceny charges,  In this instance, Brant pled guilty to first degree falsification of business records, and will pay an additional $1 million to the City and State of New York.  While the offense, a Class E felony, is punishable by up to four year imprisonment, the plea agreement only calls for the fine, a significant benefit for Brant in avoiding jail time.  According to a press release (here) issued by Morgenthau's office:

In a seven year period, from 1997 to 2003, BRANT received ten backdated option grants for a total of approximately 2.1 million shares of Take-Two stock, all of which he exercised before resigning from the company in October 2006.  For example, Take-Two’s records reflect that, on February 22, 2002, fifteen people received grants of 511,000 stock options, 100,000 of which went to BRANT.  On February 22, 2002, Take-Two stock closed at $15.25 per share, the lowest price during the company’s February to April 2002 fiscal quarter.  In fact, however, the decision to award many of those options was not made until mid-April 2002, when the stock price was above $20 per share. Take-Two’s business records, including purported Compensation Committee minutes, were falsified after the fact to reflect the earlier grant date.

On the "Where's Waldo" front, it is interesting that the Southern District of New York does not appear to be involved in the case, and has yet to file criminal charges in any of the options-timing cases.  If the Manhattan DA has gotten into the game, can the SDNY's prosecutors be too far behind? (ph)

Civil Enforcement, Fraud, Prosecutions, Securities | Permalink

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