March 31, 2010 / 9:41 PM / 10 years ago

Former Take-Two execs must defend backdating suit

* Judge refuses to dismiss securities fraud case

* Two ex-CEOs, two ex-CFOs accused of wrongdoing

* Ex-CEO Brant pleaded guilty to criminal charge in 2007

By Jonathan Stempel

NEW YORK, March 31 (Reuters) - A lawsuit by video game publisher Take-Two Interactive Software Inc accusing former top company officers of illegally backdating stock options can proceed, a Manhattan federal judge ruled on Wednesday.

The ruling by U.S. District Judge Laura Taylor Swain requires former Chief Executives Ryan Brant and Kelly Sumner and former Chief Financial Officers Larry Muller and James David to defend claims alleging securities fraud based on option grants awarded after July 12, 2001.

She also upheld claims against Brant and Sumner based on alleged misrepresentations, as well as some claims under the laws of Delaware, where Take-Two (TTWO.O) is incorporated. The publisher of the “Grand Theft Auto” series is based in New York.

Swain said Take-Two could pursue its case because the company specifically identified the alleged improperly backdated option grants and sufficiently alleged the defendants had an intent to deceive or defraud.

The judge said dismissal of claims tied to the post-July 2001 option grants is inappropriate because it is “far from clear” whether they were in fact brought too late. She did dismiss other claims because they were brought too late.

The lawsuit was originally brought by shareholders on behalf of Take-Two and their claims against the former executives were assigned to the company, Swain said.

Lawyers for Take-Two and the defendants had no immediate comment or did not immediately return calls seeking comment.

More than 200 U.S. companies were targeted by investigators for alleged backdating. This involves retroactive grants of stock options as of dates when stock prices are low, making the options more valuable. Concealing the practice can inflate company earnings and perhaps stock prices.

Last April 1, Take-Two said it agreed to pay $3 million to settle U.S. Securities and Exchange Commission charges alleging it backdated stock options.

It separately agreed at the time to pay $300,000 to the office of then-Manhattan District Attorney Robert Morgenthau, which agreed not to press criminal charges.

Brant pleaded guilty in 2007 in a related case to a criminal charge of falsifying business records and was sentenced to five years probation.

Take-Two shares closed down 22 cents, or 2.2 percent, at $9.87 on the Nasdaq on Wednesday.

The case is Take-Two Interactive Software Inc v. Brant et al, U.S. District Court, Southern District of New York, No. 06-05279. (Reporting by Jonathan Stempel; editing by Andre Grenon)

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