Tough Times for Take-Two Interactive

Take my Take-Two Interactive (TTWO) shares, please!

That seemed to be the refrain from investors on Friday as the stock price of the video game software publisher plunged as much as 20% amid an analyst downgrade and continued fallout from a fiasco involving hidden sex scenes in its flagship game.

Banc of America analyst Gary Cooper helped spark the selloff Friday with his report on the company, in which he lowered his rating on the company's stock to sell from neutral and dropped his price target from $19 to just $12.

Cooper cited a number of reasons for his downgrade, among them: accounting and governance problems at the company, the potential for an investigation by the Securities and Exchange Commission and an accounting restatement, the rapid rate at which the company is burning cash, and his expectation that the company's earnings will be lower than expected because of a delay in releasing the next major version of its Grand Theft Auto series.

"TTWO is not well-run, overly dependent on one product and will likely have to raise additional capital," said Cooper. Because of these factors, despite his downgrade, "our new price target ... may still prove aggressive," added Cooper, whose firm has done investment banking for Take-Two in the last year.

But it was more than just Cooper's note that seemed to distress investors. On Thursday, the Los Angeles City Attorney's office filed suit against the company, accusing it of unfair business practices related to the hidden sex scenes within Grand Theft Auto: San Andreas. The suit seeks to force Take-Two to give back some of the profit it has made on the game and to properly disclose the contents of its games in the future.

Take-Two acknowledged last summer that the explicit scenes were included in the original version of the game the company shipped it and that they could be accessed using a software program available on the Internet. After the discovery of the scenes, an industry rating board changed the rating on the title to "adults only," and Take-Two pulled it from store shelves. The Federal Trade Commission and the offices of at least two state attorneys general are investigating the company over the incident.