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TheStreet Open House

SEC Launches Inquiry of Electronic Arts Options

Updated from 5:19 p.m. EDT

Electronic Arts (ERTS) had some good news and some not-so good news Wednesday about inquiries into its past stock options grants.

The good news: A labor union pension fund voluntarily dismissed a lawsuit it filed against the company last month that had alleged EA used "improprieties" in the way it historically issued options.

But even as that that problem was going away, the company acknowledged another one: The Securities and Exchange Commission has launched an informal inquiry into the video game publisher's options grants going back to 1997.

"EA intends to cooperate with all matters related to this inquiry ," the company said in a regulatory filing on Wednesday.

Company spokesman Jeff Brown declined to comment further on the lawsuit's dismissal or the SEC inquiry.

Investors seemed to think the bad news outweighed the good. In recent after-hours trading, shares of EA were off 82 cents, or 1.5%, to $55.19.

Regulatory agencies like the SEC are examining the options practices of dozens of companies in addition to EA. The wide-ranging inquiry follows allegations that at numerous companies, officials boosted the value of employee and executive options by underhandedly "backdating" them, assigning to them an exercise price from a date that was known long after the fact to be a short-term low in the stock.

An EA representative said last month that the company had already conducted its own internal inquiry into its past grants and found no evidence of any problems.

According to EA's filing, the Plumbers & Pipefitters Local No. 572 Pension Fund dismissed its suit of its own accord. EA didn't pay the company or its attorneys any compensation to get them to dismiss the suit, the company said.

EA did not say why the pension fund dismissed the suit, and the fund's attorney did not immediately return a call seeking comment.

As for the SEC probe, EA said in its filing it received the inquiry from the agency last Thursday, five days before informing investors about it.

"We filed within the compliance period," Brown said, when asked about the delay.

Shares of EA closed regular trading on Wednesday up $1.71, or 3.2%, to $56.01.

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