News: Feds Probe US Game Industry, Acclaim CEO steps down
July 22, 2003 8:30 PM PST
CNBC / Reuters / JH
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The FTC and SEC is auditing the entire US videogame software industry, most notably Acclaim, Activision, Midway and THQ, to discover if millions of dollars of revenue were unaccounted for between the period of 1996-2002. EA and Take-Two have been investigated under similar but separate charges. This stems from a long-standing suspicion that the software industry manipulates “reserve accounts”, that normally are subtracted from revenue to account for defective or returned software.
A Los Angeles based financial analyst published his findings that Midway and other companies’ revenue grew faster than their stock prices. This added to speculation that software companies dumped gross earnings into reserve accounts during a bull market, and withdrew from this fund during a bear market. In order to stabilize their stock price, the companies would report lesser earnings during a bull market, and greater earnings during a bear market.
Amidst these allegations, Gregory Fischbach, co-founder and CEO of Acclaim stepped down but will remain as Co-Chairman and Member of Board of Directors. It is quite possible that the companies in immediate investigation are also suffering in sales, which may be a motivation to commit said manipulation of reserve funds.