LOS ANGELES – Take-Two Interactive Software Inc. (TTWO) said on Monday it faces a probe by a Manhattan grand jury into everything from hidden sex scenes in a popular video game to acquisitions, accounting and its change of auditors, sending its shares down 20 percent.
The announcement marked the latest blow for Take-Two, which has faced probes and lawsuits related to both its financial reporting and an explicit sex scene in its "Grand Theft Auto: San Andreas" game, which is part of a top-selling game franchise that has generated more than $1 billion in sales.
Take-Two said on Monday it received grand jury subpoenas issued by Manhattan's district attorney on June 19, requesting documents from various periods beginning on October 1, 2001.
Janco Partners analyst Mike Hickey said there appeared to be a focus to the wide-ranging information request.
"If you look at all of the data points they brought up, it seems to be tied to stock options and executive compensation," Hickey said.
A spokeswoman for the district attorney's office declined to comment.
Take-Two said it has not been advised that it or any specific individual is presently a target of the investigation. It said it was cooperating fully and providing the requested documents.
"We have not been advised and cannot speculate about the nature of the investigation," spokesman James Ankner said in an e-mail.
A WIDE NET
The subpoenas specifically requested documents related to company officers' and directors' knowledge about the creation and inclusion of the controversial "Grand Theft Auto: San Andreas" scene that came to be known as "Hot Coffee" and could only be accessed with a program downloaded from the Internet.
Upon its discovery last summer, the industry's rating board slapped a restrictive "adults only" label on the blockbuster title and retailers pulled it from shelves — costing the game maker millions of dollars and spawning lawsuits from shareholders and the city of Los Angeles.
New York-based Take-Two recently settled a Federal Trade Commission complaint related to "Hot Coffee" without fines or admission of wrongdoing.
Among other things, the subpoenas are looking for documents related to executive compensation, partnerships, earnings reports, acquisitions and its dealings with and ultimate termination of accounting firm PricewaterhouseCoopers LLP.
Take-Two shares fell to $10.30 from $12.87 in extended trade on Inet. At the close of Nasdaq trade on Monday, they had already lost more than half of their value since June 1 last year.
Take-Two last year paid $7.5 million to settle with the U.S. Securities and Exchange Commission, closing a nearly four-year investigation into the video game maker's accounting practices. The company did not admit or deny wrongdoing.
Its audit committee chairwoman resigned in January, and in a regulatory filing accused management of failing to keep the board informed of key issues.
The company, which has been under pressure to cut costs amid a transition to new console technology that has dampened industry sales, recently said it expects to return to profitability in its fiscal fourth quarter ending October.
While Take-Two has what is viewed as the strongest intellectual property in the video game industry, its falling stock price and a string of investigations has worn investor patience thin.
"The one sticking point that most people have with the company is management," Hickey said. "Someone's going to be held accountable at some point."