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Class Action Lawsuit Filed Against Take-Two

by Rainier on March 21, 2006 @ 1:48 p.m. PST

The City of Flint and its Pension Fund, both investors, filed a class action lawsuit against Take-Two, alleging fraud and insider stock trading.

The suit alleges that the seller of controversial video games such as Grand Theft Auto deceived investors, including Flint's pension fund, by misrepresenting the strength of the company, while concealing the fact that its largest selling video game was being pulled off the shelves and banned by major retail chains around the country due to sexually explicit content that was secretly embedded in the program and which could be accessed by users downloading an Internet modification called "Hot Coffee."

The suit alleges that the company buried this explicit content so that major retailers that would otherwise refuse to carry products containing sexual content would sell their game. By hiding the sexual content, the game could be sold with a "Mature 17+" rating, as opposed to an "Adult 18+" rating, which major retailers would not carry.

The lawsuit alleges that while the City of Flint pension fund was purchasing shares of the company as part of its Pension Fund portfolio believing that the stock was a strong investment, insiders in the company were illegally dumping hundreds of thousands of shares of stock worth over $18 million, knowing that the value of the stock would soon plummet due to the change in rating. Shortly after the company's officers sold off their stock, the news broke that Grand Theft Auto was being banned by retailers and the stock value plummeted, the suit alleges.

Mayor Don Williamson stated that "Fraud against the taxpayers of Flint and our retired Flint police officers and firefighters will not be tolerated." Mayor Williamson added, "Not only was the city pension fund deceived as to the value of the stock, but the true nature of what this company was selling was being concealed too."

The suit quotes extensively from publicly filed securities documents and financial documents.

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