Another Parallel Civil/Criminal Stock Option Backdating Case

Today the SEC filed settled civil charges against Ryan Ashley Brant, formerly the CEO and Chairman of the Board of Take-Two Interactive Software, Inc. http://www.sec.gov/news/press/2007/2007-20.htm The SEC alleged that during a seven year period, Brant participated in a “pick-a-date” option granting scheme to grant undisclosed, “in the money” stock options to himself and to other officers and employees. Brant consented to disgorge ill-gotten gains of $4,118,093 with $1,143,513 in prejudgment interest, and to pay a $1,000,000 civil penalty, for a total of $6,261,606. The settlement is subject to the approval of the United States District Court for the Southern District of New York. Brant’s actions also caused Take-Two to materially misrepresent its financial condition to investors.

Associate Director Christopher Conte said, “The complaint alleges that Brant, with the participation and knowledge of senior executives and others at Take Two, looked back and picked grant dates to coincide with historically low prices, and that he did so, in virtually all instances, without Board approval for either the grant dates or exercise prices. This case highlights the need for public companies to ensure that their internal controls and oversight structures are adequate to prevent stock options from being granted in ways that are contrary to shareholder approved option plans.”

Separately, Brant has pled guilty to felony criminal charges of Falsifying Business Records in the First Degree and agreed to pay $1 million in lieu of fines and forfeiture, which will be distributed to state and local New York authorities. Brant previously settled with the Commission for his alleged role in a massive financial fraud at Take Two in 2000 and 2001.

SEC Commissioner and ABA Suggest Reconsideration of Seaboard Report

Friday February 9, Commissioner Paul Atkins suggested to attendees at the annual SEC Speaks program presented by the Practicing Law Institute in Washington, D.C., that the SEC’s process for approving waivers should be revisited. “It’s time that we review our processes and procedures,” Atkins told reporters after his speech. The same week Karen J. Mathis, President of the ABA, sent a letter to SEC Chairman Cox proposing revisions to the Commission’s policies regarding requesting privilege and other waivers.  Specifically, the proposal advocates dropping a footnote to criteria 11 in the SEC’s Seaboard Report.  Presently note 3 to that part of the Seaboard Report states that companies may chose not to assert the attorney client privilege and work product doctrine as part of their efforts to cooperate with the SEC.  The ABA proposal would  add an addendum to criteria 11 stating that “a company shall not be required to take any of the forgoing actions to the extent that it would result in a waiver of the attorney-client privilege or work product doctrine.”  Based on Commissioner Atkins’ remarks and the increased attention to the issue in light of the DOJ’s McNulty Memorandum and other groups such as the ABA, it will be interesting to see when, if, and how the SEC reacts to continued calls for policy revisions.