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Former Take-Two execs to face fraud allegations

Court orders founder Brant and key execs defend themselves in stock backdating case

A US district judge has ruled that four former Take-Two executives must defend themselves against allegations of illegally backdating stock options in a lawsuit brought against them by Take-Two.

The ruling means that former Take-Two execs - company founder Ryan Brant, chief exec Kelly Sumner and CFOs Larry Muller and James David - will have to face claims alleging securities fraud, based on option grants awarded after July 12, 2001, reports Reuters.

Judge Laura Taylor Swain also upheld claims against Brant and Sumner of misrepresentation, as well as further claims made under Delaware laws. She said that Take-Two could pursue the case after specifically identifying the alleged wrongly backdated option grants, which provided evidence the defendants had intended to deceive or defraud.

By backdating stock options employees can make sure they are granted stocks when prices are low, making the options more valuable to them - but not declaring they've done so is a criminal offence.

The practice can also inflate a company's earnings and stock prices, and Take-Two was forced to pay a settlement to the Securities and Exchange Commission of $3 million last April after discrepancies were discovered.

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

In 2007, Take-Two's founder Brant pleaded guilty to his part in stock options backdating, and was handed five years probation and ordered to pay $6.3 million to settle a civil suit, as well as a further $1 million to the New York city and state officials.

Patti Tay, who had held the role of chief accounting officer also received three years probation and a $300,000 fine, while the company's former general counsel, Kenneth Selterman, admitted providing false information in 2002 and was ordered to pay $50,000.

This new lawsuit was originally instigated by shareholders on behalf of Take-Two, but their claims have now been assigned to the publisher.

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Kath Brice