Updated from 6:04 p.m. EDT

Take-Two Interactive ( TTWO) is ceasing production of the latest version of its popular Grand Theft Auto game following public outcry about a software hack that allows players to see racy sex scenes.

The video-game software publisher is setting up a reserve fund to cover the value of copies of the game still in its inventory. As a result, Take-Two is slashing its outlook for its fiscal third quarter and its full fiscal year.

Investors frowned on the news, sending the company's stock down nearly 7% in after-hours trading.

The move is in response to and follows the completion of an investigation by the Entertainment Software Rating Board, a regulatory body set up by the gaming industry. New York Sen. Hillary Rodham Clinton and other public officials have called for separate inquiries.

The ESRB has advised retailers to stop selling GTA until the "corrective actions" have been taken.

According to the ESRB, Take-Two agreed as part of the settlement to either re-label for retailers the current version of GTA with an Adults Only rating or to exchange all unsold copies the retailers are holding for copies of the updated game

Take-Two "is pleased that the ESRB investigation is now settled," the company said in a statement.

The Grand Theft Auto series has long been controversial for its depictions of street gang violence. Sans modification, the games have included scenes that imply sex between some of the characters. But a third-party program called "hot coffee" that is available over the Internet allows players to see their character actually engage in sex.

Some analysts have charged that the "hot coffee" modification simply allowed access to scenes that were already built into the game. Take-Two spokesman Jim Ankner acknowledged that the scenes were on the game discs, but said they were examples of "unused and unfinished" content that is often found on game discs when they ship. Game players could not view the scenes without the hot coffee program, the installation of which constitutes a violation of the end-user agreement, Ankner said.

"In the future, we will be more diligent to be sure that content like that is removed," he said.

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