Tough Times for Take-Two Interactive

"As a result of the existence of these material weaknesses identified above, [Take-Two's] management will conclude that as of October 31, 2005, the Registrant's internal control over financial reporting was not effective," the company said in the filing.

Kaczynski's resignation and the delay in filing the annual report both played into Cooper's decision to downgrade Take-Two's stock. One of the things that came out of her resignation was that the position of chairman of the company's board of directors had been vacant since last June, Cooper noted.

"We are unable to determine who is actively at the helm of the company," Cooper said. "We believe the board of directors is weak as evidenced by a lack of managerial changes despite 13 pre-announcements, earnings estimate revisions or outright earnings [misses] in the past 10 quarters."

Additionally, the delay in the filing of the annual report, added to Kaczynski's statements about SEC inquiries and the timing of certain insider sales last year, adds to Cooper's suspicions that the SEC may launch a full-bore investigation into the company.

On the operations side, Cooper finds a lot to worry about concerning the Grand Theft Auto franchise, which is the core part of the company's business. The company plans to soon release a version of its Grand Theft Auto: Liberty City Stories for Sony's (SNE Quote) PlayStation 2, just six months or so after it released the original version for the PlayStation Portable handheld. By doing so, the company runs the risk of "degrading" the franchise, Cooper said.

"We continue to fear the 'Madonna syndrome' (i.e. over-saturation)," he said. "We believe that TTWO should slow down the releases of this property. But we understand that if it did its cash flow would be much lower."

Judging by the market's reaction, Cooper is not the only one concerned.