SEC Probes Video-Game Makers...
Tuesday July 22, 9:13 am ET
Associated Press
Four Large Video Game Companies Say They Are Under Formal Probe by the SEC
NEW YORK (AP) -- Four large video game companies have revealed in regulatory filings that they've come under formal investigation by the Securities and Exchange Commission.
Details were scant in the filings by Acclaim Entertainment Inc., Activision Inc., THQ Inc. and Midway Games Inc., but analysts speculated that the SEC probe may be related to an investigation of another game company, Take-Two Interactive.
Take-Two last year restated seven quarters' worth of results over the way it recognized revenue.
Game publishers set aside reserves for a certain percentage of product they ship in case retailers return the product or need to mark it down.
UBS Investment Research analyst Michael Wallace explained in a research note Monday that some distributors have been known to "stuff the channel," or ship product to retailers in order to meet their quarterly revenue expectations, then take the product back from the retailer via excess reserves without affecting the company's income statement.
Wallace noted that most game publishers do business with Take-Two's Jack of All Games U.S. distribution business when they want to move marked-down products.
The SEC notifications for the other game companies could just be fact-finding as an extension of the Take-Two investigation, Wallace said.
He doesn't own shares of any video game company he covers. His firm has had investment banking relationships with Activision, Gamestop Corp. and Midway Games Inc. within the last 12 months, and with Acclaim Entertainment and THQ Inc. within the past three years.
Acclaim Entertainment said it has no comment and will update shareholders as necessary via SEC filings. Officials from Activision and THQ Inc. weren't immediately available for comment.
Shares of all four companies fell on the news.
THQ, of Calabasas Hills, Calif., fell $1, or 5.6 percent, to $16.70 on the Nasdaq Stock Market.
Santa Monica, Calif.-based Activision's stock closed down 9.4 percent, or $1.17, at $11.29 on the Nasdaq.
Glen Cove, N.Y.-based Acclaim's shares closed at 66 cents, down 2 cents. Shares of Chicago-based Midway closed at $3.27, down 15 cents, or 4.4 percent, on the New York Stock Exchange....
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