Activision Sued Over Stock-Option Grants

Activision (ATVI Quote - Cramer on ATVI - Stock Picks) is the latest company caught in the stock-options backdating maelstrom.

The video-game software company said on Wednesday that it has been sued over "purported improprieties" with its past options grants. The suit was filed a week ago in state court in Los Angeles.

Activision "is reviewing the allegations in the complaint and will respond appropriately," the company said in a regulatory filing acknowledging the lawsuit.

Company representatives did not return calls seeking comment on the suit or its allegations.

The lawsuit follows several recent analyst reports that suggested that Activision's grants could draw the scrutiny of federal regulators.

After reviewing the past options grants of companies in the video-game software sector, for instance, American Technology Research analyst P.J. McNealy wrote in a research note on Tuesday that among such companies, Activision faced the highest risk of being investigated. Its past options grants, which included a high proportion of options to executives and multiple grants per year, resembled those of companies that had already drawn such scrutiny, McNealy said.

Activision has not said whether it is investigating its past grants or whether it has been contacted by regulators.

More than 50 companies, including Apple Computer (AAPL Quote - Cramer on AAPL - Stock Picks) and UnitedHealth (UNH Quote - Cramer on UNH - Stock Picks) have already been caught up in the backdating scandal, either launching their own internal probes or being subject to regulatory inquiries. The investigations center on allegations that companies underhandedly granted options to executives and employees at favorable prices.

Stock options grant insiders the right to buy shares of their company's stock at a predetermined price. Typically, that price is the market price of the stock on the day the option is granted to the employee or executive.

But companies caught up in the scandal are accused of issuing options that carried exercise prices from dates that were days or weeks before the grant date. In many cases, those exercise prices corresponded to short-term lows in the stock that companies allegedly were aware of when they granted the options.