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SEC Launches Take-Two Investigation

Posted by ryuzaki0 on 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?"

21 of 73 comments (clear)

  1. Informal, eh? by tygerstripes · · Score: 5, Funny

    "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."

    --
    Meta will eat itself
  2. Does anyone have more info? by 192939495969798999 · · Score: 5, Funny

    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...

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    stuff |
    1. Re:Does anyone have more info? by bfizzle · · Score: 2, Interesting

      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

    2. Re:Does anyone have more info? by Anonymous Coward · · Score: 3, Interesting

      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/, http://www.faulkingtruth.com/ and http://www.investigatethesec.com/.

      By the way, and "informal" investigation technically is where the SEC ask for documents and provides them. They turn "formal" when the SEC issues subpoenas in order to get the information.

    3. Re:Does anyone have more info? by shotfeel · · Score: 2, Informative

      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 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.

    4. Re:Does anyone have more info? by j-turkey · · Score: 2, Informative
      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. 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.

      --

      -Turkey

    5. Re:Does anyone have more info? by shotfeel · · Score: 2, Informative

      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-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.

  3. One in a long line... by Boone^ · · Score: 3, Informative

    Score another one for http://www.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

    1. Re:One in a long line... by mabhatter654 · · Score: 2, Interesting

      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 companies were "nicely asked" years ago to stop this practice all nice an polite-like so they didn't get hit. That's how most of the big tech companies posted such great numbers in the 90's and minted so many millionaires with out breaking payroll or "profits". The players getting "caught" now are just the copycats that followed along because that type of accounting was "industry standard" for so very long. In some ways its a tempest in a teapot, because the company funds are just fine and they are now accounting correctly. In other ways it's "Great Depression" level stuff because investors allowed companies to basically lie about employee compensation for so long that if it all had to be cleaned up at all the companies, at once, the market would crash because so many books are "cooked". Of course the REAL damage is not so much those companies investors, but those who played FAIR when nobody cared and investors overlooked for the big investments because their books were being compared to companies with "cooked" books.

  4. "informal"? by Iphtashu+Fitz · · Score: 3, Insightful

    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 (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.

    1. Re:"informal"? by DerekLyons · · Score: 2, Funny
      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 documents.

      I don't know where you got that impression - as it certainly isn't supported if you regularly follow business news.
  5. No Big Deal by jjohnson · · Score: 5, Insightful

    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.

    --
    Anyone who loves or hates any language, platform, or manufacturer, doesn't know what they're talking about.
  6. Thoughtful investing? by The+Living+Fractal · · Score: 2, Interesting

    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 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.

    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. 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? Again, I am seriously asking these questions.

    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.

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

    TLF

    --
    I do not respond to cowards. Especially anonymous ones.
    1. Re:Thoughtful investing? by badasscat · · Score: 3, Informative

      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

  7. how many? by revlayle · · Score: 3, Funny

    "Just how many investigations can a publically trade company handle before their stock turns to worthless paste?"

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

    It's three

  8. Re:Hey, gamers! by Anonymous Coward · · Score: 2, Funny

    Err...maybe you should quit pasting that long enough to reread the wiki entry you linked.

  9. Re:ttwo by Lothsahn · · Score: 2, Funny

    Maybe you should apply to be an editor of Slashdot...

    --
    -=Lothsahn=-
  10. Grand Jury * by Anonymous Coward · · Score: 2, Interesting

    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.

  11. If Only... by Kurt+Wall · · Score: 2, Interesting

    ...the SEC would target SCO's "interesting" stock option arrangements.

  12. Grand Jury Inquiry by Mr.+Underbridge · · Score: 3, Funny

    Is that the name of their new game? Do I get to play a lawyer?

  13. Re:how many? by pimpimpim · · Score: 2, Insightful

    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 all ingredients are there to kill off Take Two even without any real arguments to be found.

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    molmod.com - computing tips from a molecular modeling