Take-Two's in-game sex scandal, and real-life backdating scandal resolved to the tune of $20 million
As Rockstar Games and Take Two Interactive's Grand Theft Auto series continues to move ahead with releases of Chinatown Wars for the iPhone, and GTA IV: The Ballad of Gay Tony expansion pack for Xbox 360 on the horizon, the controversy from 2004's Grand Theft Auto: San Andreas has only just now cooled down.
In a statement from Take-Two yesterday, the company said it will settle the class action suit over the unlockable sex scenes in GTA: San Andreas, and the "historical stock option granting practices" suit which brought the company before the Securities and Exchange Commission earlier this year.
The proposed settlement amounts to $20.1 million dollars for the class action, $15.2 million of which will be paid by Take-Two's insurance, and $4.9 million from the company itself.
"We are pleased to have reached this settlement, which represents another important step forward for the Company," said Strauss Zelnick, Chairman of Take-Two.
The "Hot Coffee" patch opened a graphic sexual mini-game within San Andreas which caused the game to be mis-rated by the ESRB. The class action in New York alleged that "As a result, consumers like the Plaintiffs herein purchased the game not knowing of the pornographic content, and accordingly have suffered harms sounding in their claims set forth below for (a) violations of Uniform Deceptive Acts and Practices statutes (sometimes also referred to as "Consumer Protection Statutes"); (b) breach of the implied warranty of merchantability; and (c) unjust enrichment."
While that was a serious public disturbance, the backdating going on behind the scenes was potentially much more destructive. The backdating suit alleged that "during a seven year period, Take-Two defrauded investors by granting backdated, undisclosed 'in the money' stock options to officers, directors, and key employees while failing to record required non-cash charges for option-related compensation expenses." Within the complaint, Take-Two was accused of granting backdated options over 100 times between 1997 and 2003, and falsifying its reported income. The SEC had previously charged Take-Two's former CEO Ryan Brant for devising the fraudulent options backdating scheme.