Take Two Takes Another: Two Executives (Including the Former General Counsel) Plead Guilty

As the WSJ has noted, Take Two has again been in the news.  Two former employees of the company, a video game manufacturer (think the Grand Theft Auto series), agreed to plead guilty to a single misdemeanor for "falsifying business records in connection with improper backdating of employee stock options"   They included the former general counsel, Kenneth Selterman.  As the press release by the New York DA's office described:

• SELTERMAN held the position of General Counsel at Take-Two from 1999 to 2007, when he left the company. SELTERMAN’s plea related to a letter submitted to The NASDAQ Stock Market, Inc. (“NASDAQ”) concerning the types of stock options that had been issued to executive officers at Take-Two.  NASDAQ rules required that executive officers receive only options granted pursuant to an employee stock option plan.  During the course of the investigation it was discovered that SELTERMAN, in response to a 2002 request by NASDAQ, deliberately and falsely failed to inform NASDAQ that certain executive officers had received substantial numbers of “non-plan” options.
  
  Under his plea agreement, SELTERMAN, will pay a $50,000 fine, and he will be permanently barred from holding “control management positions” in publicly traded companies.  In addition, he has agreed, should the SEC require it, to a lifetime bar from practicing before the SEC as an attorney. It is expected that, in addition to the criminal fine, SELTERMAN will be sentenced to probation and 200 hours of community service. SELTERMAN has disgorged his profits from the misdated option grants in a settlement with the company.
  

The effort was apparently in cooperation with the Securities and Exchange Commission.  As the press release noted:  "Mr. Morgenthau thanked the SEC and the following individuals, all members of the SEC’s Division of Enforcement"

This is not the first time Take Two has been in the news over its backdating practices.  As this Blog discussed earlier, the former CEO Ryan Brant pled guilty to a felony and settled a case with the SEC, one involving $6 million in penalties, disgorgement and interest.  The company has disclosed in a current report that the Securities and Exchange Commission has issued a formal order of investigation into Take Two's stock option activities. 

These cases demonstrate a stark contrast in the attitude towards backdating between the federal authorities and at least some of the thinking coming out of the Delaware courts.