2K Sports 2008 Annual Report Download - page 36

We intend to vigorously defend all of the above matters and, with respect to the derivative actions, we have
been advised that the individual defendants will vigorously defend such actions. However, we cannot
predict the outcome of these matters and, if determined adversely to us, such matters, either individually
or in the aggregate, could result in the imposition of significant judgments, fines, penalties and/or
injunctive relief, which could have a material adverse effect on our business, financial condition, results of
operations or cash flows.
Grand Jury Subpoenas. In 2006, we received grand jury subpoenas issued by the District Attorney of the
County of New York requesting production of documents covering various periods beginning on January 1,
1997, including those relating to, among other things: the so-called ‘‘Hot Coffee’’ scenes in Grand Theft
Auto: San Andreas; the work of our Board of Directors, all board committees and the Special Litigation
Committee; certain acquisitions entered into by us; billing and payment records relating to
PricewaterhouseCoopers LLP and the termination of PricewaterhouseCoopers LLP as our auditors;
communications to financial analysts and stockholders about acquisitions and financial results;
compensation and human resources documents of certain of our directors and employees and former
directors and employees; stock-based compensation; the SEC’s July 2006 inquiry; legal services performed
for employees; corporate credit card and expense records of certain individuals; the SEC bar of our former
Chief Executive Officer, Ryan Brant; the resolution to amend our Incentive Stock Plan; and ethics,
securities, and conflict of interest policies and questionnaires. Over time, the District Attorney’s
investigation focused on options backdating. We have fully cooperated and provided the documents and
information called for by the subpoenas.
SEC Investigation. In July 2006, we received notice from the SEC that it was conducting an informal
non-public investigation of certain stock option grants made from January 1997 to 2006 and in April 2007
we received notice from the SEC that it was conducting a formal investigation of such stock option grants.
As a result of the Special Litigation Committee’s internal review of our option grants, in February 2007 we
restated our financial statements for prior periods in our Annual Report on Form 10-K for the fiscal year
ended October 31, 2006. In August 2007, we received a ‘‘Wells’’ notice from the Staff of the Division of
Enforcement of the SEC informing us of its intention to request authority to file charges, and to seek a
civil monetary penalty in connection with its investigation. We submitted a response to the Staff’s notice in
September 2007, urging that no charges should be brought against us. We have continued to cooperate
with the Staff and we continue to expect to resolve this investigation by means of a settlement rather than a
contested litigation of charges.
Tax Inquiries. We have been in contact with and have received requests for information from several
taxing authorities for records relating to the grant and exercise of options and tax deductions taken by us
from October 2000 to October 2006.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year
ended October 31, 2008.
26