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More On SEC Probe Into Game Publishers
Thanks to Reuters for a follow-up article discussing the SEC investigation into videogame publishers, in which Acclaim, Activision and THQ are already a part. Analysts elaborated on the probe: "..the investigation was probably considering two key questions: at what point in a game's release did the publisher recognize revenue from its sale, and whether reserves taken as insurance against weak sales were being used to smooth out revenues." This may mean the rush to get product out at the end of the financial year, as recently occurred with Tomb Raider, may be changed somewhat: "For example, some video game publishers book software revenue on the day the product is shipped. A more conservative approach could be to book revenue the day a retailer takes possession of the goods." Update: 07/21 22:14 GMT by S : There's also a good CNN Money article discussing the implications of this probe.
Most of the article wasn't devoted to outright insider trading like you're describing, but the shady but very common industry practice of not recognizing revenue as soon as it comes in.
Let's say you're Acclaim. You've just put out Turok, and times are good. Wall Street was predicting you'd make $0.10 per share, and instead you made $0.12. So do you announce that you've beat by two cents? Of course not, you can the same amount of good press with $0.11, and the rest goes in the CEO's mattress for a rainy day.
It's two years later, you've just put out Turok 7 and the kids who loved Turok are starting to get old enough to tell quality games from the crap you're putting out, and now you're about to miss expectations by a penny. The rainy day is here, time to dip into the savings and bump up earning a bit. Yeah, it's a bit artificial, but who's it hurting...