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Take-Two Interactive Gets Coffee Break

Feds give the company a wrist slap for sex-scene controversy.

The discovery of hidden, explicit sex scenes in

Take-Two Interactive's

(TTWO) - Get Take-Two Interactive Software Inc. Report

flagship game last year led to a costly recall, lawsuits and a plunge in the video game publisher's stock.

Apparently deciding that the company had suffered enough for the "Hot Coffee" fiasco, federal regulators announced on Wednesday that they're letting the company off with little more than a slap on the wrist.

Under a proposed settlement agreed to by Take-Two and the Federal Trade Commission, which was investigating allegations of deceptive advertising by the company related to the scandal, the company won't have to pay a fine and won't be forced to pull any products from the shelves, and none of the company's executives will face any personal penalties.

Instead, the company merely agreed to disclose on future product packages or advertisements any game content that wasn't taken into consideration by the game industry's ratings organization but which might have affected their rating. In other words, if a game has an explicit sex scene in it that, say, the Entertainment Software Rating Board didn't know about when it gave a game a "mature" rating, the company has agreed to disclose that information on the game box.

The company also agreed to take steps to make sure all relevant game content is considered by the ESRB when it is making ratings and will pay a fine of $11,000 per violation if it violates the agreement.

"Parents have the right to rely on the accuracy of the entertainment rating system," Lydia Parnes, director of the FTC's consumer protection bureau, said in a statement. "We allege that Take-Two and Rockstar's actions undermined the industry's own rating system and deceived consumers. This is a matter of serious concern to the commission."

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FTC commissioners voted unanimously to approve the proposed settlement. The public now has 30 days to comment on it before the commission will decide to issue a final approval.


acknowledged last July that hidden inside

Grand Theft Auto: San Andreas

, the latest iteration of it core game franchise, was a mini-game that allowed players to manipulate characters to perform explicit sex acts. Players could access the mini-game by downloading a program dubbed "Hot Coffee" over the Internet.

In response to the revelation, Take-Two agreed to re-rate the game from "mature" to "adults only," meaning that many stores no longer would carry it. The company took a $24.5 million inventory charge as a result of stores returning the title to the company. Take-Two later re-issued

San Andreas

without the "Hot Coffee" content and offered a software patch for those who already owned the game.

Shares of Take-Two, which will report fiscal second-quarter earnings after the bell on Thursday, have fallen about 40% since it acknowledged the "Hot Coffee" problem.