The SEC's focus on options backdating cases has, by its own admission, diminished greatly. Indeed, the SEC's San Francisco Regional Office, which had been leading that charge, stated in November 2008 that it had brought the final options backdating case that it expected to file. In the home office in D.C., however, it appears that there are still some cases winding their way through the pipeline.

The SEC announced today that it filed a settled civil action against video game company Take-Two Interactive Software, Inc. The SEC complaint alleges that over 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.

The Complaint alleges that Take-Two looked back and picked grant dates for incentive stock options (resulting in grants of "in-the-money" options) on over 100 occasions from 1997 through September 2003. The SEC claims that among the means Take-Two used to backdate options were:

pre-priced option pools;

backdating of employment agreements; and

"pick-a-date" backdating, whereby a set exercise price for the grants was chosen, and then a past grant date was selected when Take-Two's stock price most closely corresponded to the set exercise price.

The Complaint alleges that because Take-Two failed to disclose the backdating scheme, many of its SEC filings contained materially false and misleading statements concerning the true grant dates and proper exercise prices of stock options. As part of the settlement, Take-Two consented to an injunction and agreed to pay a $3 million civil penalty.

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