They Got Gamemakers?

Four of the software makers say they have been contacted in a revenue-recognition probe.
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After a flurry of heavy selling earlier in the week, trading in shares of four video gamemakers being investigated by the

Securities and Exchange Commission

slowed on Tuesday.

The four companies,


(ATVI) - Get Report


Acclaim Entertainment



Midway Games





all said in recent regulatory filings that they have been asked by the SEC for information related to accounting practices.

The filings had few details, but analysts who follow the sector believe the SEC is looking into "channel stuffing," a common practice whereby software vendors recognize revenue when product is sent to retailers, and then take some back unsold. Vendors normally set aside reserves to account for returns or markdowns.

"The SEC is likely looking into revenue recognition (and the amount of reserves) vs. the timing of product sellthrough in the channel," Deutsche Bank analyst Jeetil Patel said in a note to clients

It appears that market leader

Electronic Arts


has not been approached by the SEC, he added.

In afternoon trading, Activision (which will report first-quarter earnings after the close Tuesday) was up 46 cents, or 4%, to $11.75; Acclaim was off 3 cents, or 4%, to 63 cents a share; Midway is off 3 cents, or 1%, to $3.24; and THQ is off 10 cents, less than 1%, to $16.60. Electronic Arts was off $1.50, or 2%, to $75.34.