Tough Times for Take-Two Interactive

"Greed and deception are part of the Grand Theft Auto: San Andreas story -- and in that respect its publishers are not much different from the characters in their story," said Los Angeles City Attorney Rocky Delgadillo, in a statement. "Businesses have an obligation to truthfully disclose the content of their products -- whether in the food we eat or the entertainment we consume."

Following news of the downgrade and the suit, Take-Two's stock was reeling. In recent trading, the company's shares were off $2.48, or 15%, to $14.55. Earlier in the session, they traded as low as $13.64.

A company representative did not return a call seeking comment.

The latest turmoil ends a tough two weeks for Take-Two. Earlier this week, the company endured a broadside from its former audit chief. In her resignation letter, which the company released this week, Barbara A. Kaczynski charged that there was an "unhealthy relationship" between the company's board of directors and its senior management "characterized by a lack of cooperation and respect." Kaczynski also expressed concern over the FTC investigation and various SEC inquiries concerning the company.

Kaczynski's resignation followed the company's warning the previous week that it would delay filing its annual report because of problems it found while assessing its internal controls -- a set of checks and balances that companies are supposed to have in place to prevent corporate fraud. The Sarbanes-Oxley Act required most larger companies and their auditors to start assessing and reporting the state of the companies' internal controls in the last year.

According to a regulatory filing, Take-Two found two "material weaknesses" in its controls, one relating to its accounting for accounts payable and one related to how it keeps track of software development costs that it has chosen to account for as a capital expenditure.