UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

_________________________________________
                                         )
CHANI HERZOG, individually and on behalf )  Case No. [98-CV-85]
of all others similarly situated,        )  [filed Jan. 7, 1998]
                                         )
                                         )
     Plaintiff,                          )  CLASS ACTION COMPLAINT
                                         )  FOR VIOLATION OF THE
     v.                                  )  FEDERAL SECURITIES LAWS
                                         )
GT INTERACTIVE SOFTWARE CORPORATION,     )
RONALD CHAIMOWITZ, and JOSEPH J. CAYRE,  )  JURY TRIAL DEMANDED
                                         )
     Defendants.                         )
                                         )
_________________________________________)


          Plaintiff, by her attorneys, for her Class Action

Complaint (the "Complaint") alleges the following upon personal

knowledge as to herself and her own acts, and upon information

and belief based upon the investigation of plaintiff's attorneys

as to all other matters.  The investigation includes the thorough

review and analysis of public statements, publicly-filed

documents of GT Interactive Software ("GT" or the "Company"),

press releases, news articles and the review and analysis of

accounting rules and related literature.  Plaintiff believes that

further substantial evidentiary support will exist for the

allegations set forth below after a reasonable opportunity for

discovery.


                        SUMMARY OF ACTION

I.   This is a securities class action on behalf of public

investors who purchased securities of GT during the period from

August 1, 1996 through December 12, 1997 (the "Class Period").

During the Class Period, GT's financial results, as reported by

defendants, were materially misleading and materially inflated

the Company's true financial position and results of operations.

          1.   GT, a Delaware corporation whose headquarters are

in New York, New York, publishes and merchandises interactive

entertainment, edutainment (presumably an amalgam of "education"

and "entertainment") and value-priced consumer software for a

variety of platforms on a world-wide basis.  Throughout the Class

Period, GT reported artificially inflated earnings by failing

properly to expense research and development costs.  Moreover,

during the Class Period, defendants issued public statements

which fraudulently created the false impression that the

Company's accounting practices were proper.

          2.   On December 12, 1997, after BancAmerica, Robertson

Stephens downgraded GT due to possible accounting improprieties,

GT's stock price fell more than 17%.  This downgrade considered

the impact of GT's writing off of some, if not all, of the $87.5

million in prepaid royalties that GT had previously improperly

capitalized.


                      JURISDICTION AND VENUE

          3.   This Court has jurisdiction over this action

pursuant to Section 27 of the Securities Exchange Act of 1934

(the "1934 Act"), 28 U.S.C. §§ 1331 and 1337.  The claims

asserted herein arise under, Sections 10(b) and 20(a) of the 1934

Act, 15 U.S.C. §§78j(b), 78(n), and 78t(a), and Rule 10b-5, 17

C.F.R. §240.10b-5, promulgated thereunder by the SEC.

          4.   Venue is proper in this District pursuant to

Section 27 of the 1934 Act, 15 U.S.C. §78aa, and 28 U.S.C.

§1391(b).  Many of the defendants reside in this District.  Many

of the acts giving rise to the violations complained of,

including the dissemination of false and misleading public

statements and financial information, occurred in this District.

          5.   In connection with the wrongs alleged herein,

defendants used the instrumentalities of interstate commerce,

including the United States mails, interstate wire and telephone

facilities, and the facilities of the national securities

markets.


                           THE PARTIES

          6.   Plaintiff purchased shares of GT common stock

during the Class Period and was damaged thereby, as set forth in

the Certification filed with this Complaint.

          7.   a.   GT, incorporated in Delaware in 1992, creates,

publishes and merchandises interactive entertainment, edutainment

and value-priced consumer software for a variety of platforms on

a world-wide basis.  PC Data reported that in 1996 the Company

achieved the video-gaming industry's second highest market share

in number of units sold in the personal computer ("PC") software

game category and the industry's highest market share in number

of units sold in the PC software budget/value-priced category.

The Company claims to have expanded its line of published front-

line titles from five titles it released in 1994 to 24 titles it

released in 1995.  In 1996, it released 67 titles.

               b.   The Company currently claims to be the

largest distributor of consumer software to mass merchants in the

United States.  The Company claims to be the primary supplier of

its own, as well as third party consumer software, to

approximately 2,320 Wal-Mart stores, approximately 2,150 Kmart

stores, and approximately 760 Target stores. In addition, the

Company boasts of direct selling relationships for its own

published software with a variety of major retailers, including

among others, Sam's Club, Price-Costco, CompUSA, Best Buy,

Egghead and Computer City.

               c.   In December 1995, following the Company's

initial public offering, the Company's Common Stock was listed on

the Nasdaq National Market under the symbol "GTIS".

          8.   Defendant Ronald Chaimowitz ("Chaimowitz") is and

was at all relevant times President and Chief Executive Officer

and Director of GT.  By virtue of his position as President and

Chief Executive Officer and Director of the Company, Chaimowitz

had the authority and ability to and, in fact, controlled the

contents of the Company's annual and quarterly reports filed with

the SEC, and press releases.  Further, his actions during the

Class Period caused the material mis-statement of the Company's

financial condition and results as alleged herein.  He was aware

of the contents of the Company's publicly disseminated reports

and press releases alleged herein to be misleading and had the

ability and opportunity to prevent their issuance or cause them

to be corrected, but failed to do so.

          9.   Defendant Joseph J. Cayre ("Cayre") is and was at

all relevant times Chairman of the Board of Directors of GT.  By

virtue of his position as Chairman of the Board of Directors of

the Company, Cayre had the authority and ability to and, in fact,

controlled the contents of the Company's annual and quarterly

reports filed with the SEC, and press releases.  Further, his

actions during the Class Period caused the material misstatement

of the Company's financial condition and results as alleged

herein.  He was aware of the contents of the Company's publicly

disseminated reports and press releases alleged herein to be

misleading and had the ability and opportunity to prevent their

issuance or cause them to be corrected, but failed to do so.


                     CLASS ACTION ALLEGATIONS

          10.  Plaintiff brings this action as a class action

pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of

Civil Procedure, individually and on behalf of all other persons

or entities who purchased or acquired GT during the Class Period

and were damaged thereby, excluding the defendants herein, their

affiliates and any officers or directors of GT or its affiliates,

and any members of immediate families and their heirs, successors

and assigns (the "Class").

          11.  The Class is so numerous that joinder of all the

members of the Class is impracticable.  Plaintiff believes there

are at least hundreds of record holders of the Company's common

stock located throughout the United States.

          12.  Plaintiff's claims are typical of the claims of

absent Class members.  Members of the Class have sustained

damages arising out of defendants' wrongful conduct in violation

of the federal securities laws in the same way as the plaintiff

sustained damages from the unlawful conduct.

          13.  Plaintiff will fairly and adequately protect the

interests of the Class.  She has retained counsel competent and

experienced in class and securities litigation.

          14.  A class action is superior to other available

methods for the fair and efficient adjudication of the

controversy.  The Class is numerous and geographically dispersed.

It would be impracticable for each member of the Class to bring a

separate action.  The individual damages of any member of the

Class may be relatively small when measured against the potential

costs of bringing this action, and thus make the expense and

burden of this litigation unjustifiable for individual actions.

In this class action, the Court can determine the rights of all

members of the Class with judicial economy.  Plaintiff does not

anticipate any difficulty in the management of this suit as a

class action.

          15.  Common questions of law and fact exist as to all

members of the Class and predominate over any questions affecting

solely individual members of the Class.  These questions include,

but are not limited to, the following:

               a.   whether defendants' conduct as alleged herein

violated the federal securities laws;

               b.   whether the SEC filings, press releases and

statements disseminated to the investing public during the Class

Period misrepresented GT's financial condition and results;

               c.   whether defendants acted knowingly or

recklessly in omitting and/or misrepresenting material facts;

               d.   whether the market price of GT common stock

during the Class Period was artificially inflated; and

               e.   whether the members of the Class have been

damaged, and if so, what is the proper measure of damages.


                        FACTUAL BACKGROUND

          16.  GT's financial statements and results, which

defendants publicly disseminated during the Class Period, were

materially false and misleading because GT's financial statements

failed to expense GT's research and development expenses and

royalty payments for projects that were discontinued or for which

"technological feasibility" had not yet been achieved.  As set

forth below, pursuant to generally accepted accounting

principals, research and development expenses and royalty

payments must be expensed under such circumstances.  During the

Class Period, defendants materially overstated GT's net income

and net assets.

          17.  In each quarter during the Class Period, the

Company reported its royalties paid to software developers as

cost of goods sold, capitalizing this amount rather than

expensing it.  The Company's financial statements were false and

misleading in that they materially overstated GT's net income and

net assets, and were not reported in accordance with general

accepted accounting principles, specifically, FASB Statement No.

86.

          18.   The chart set forth below summarizes the

substantial increase in Royalty Advances that GT reported during

Fiscal 1996 and 1997, along with GT's quarterly income as

reported in its filings with the Securities and Exchange

Commission.


                     GT Interactive Software

1996 Reports

                            Date of
              Date of       Earnings      Royalty          Net
             SEC Filing   Announcement    Advances        Income
             ----------   ------------    --------        ------

Quarter 1     05/14/96      4/30/96     $21,280,000     $5,100,000

Quarter 2     08/14/96      8/1/96      $29,577,000     $2,140,000

Quarter 3     11/14/96      11/4/96     $57,357,000     $3,757,000

Quarter 4     03/31/97      2/10/97     $69,202,000     $4,393,000


1997 Reports

                            Date of
              Date of       Earnings      Royalty          Net
             SEC Filing   Announcement    Advances        Income
             ----------   ------------    --------        ------

Quarter 1     05/15/97      5/5/97      $70,344,000     $4,554,000

Quarter 2     08/14/97      8/7/97      $83,591,000     $4,469,000

Quarter 3     11/14/97      11/3/97     $87,542,000     $8,526,000


GT's net income was materially inflated by the failure of GT to

expense its prepaid royalties in violation of FASB Statement No.

86.

          19.  GT's failure to expense its prepaid royalties was

one of the contributing factors to Microprose, Inc.'s decision

not to proceed with a proposed merger with GT.  Microprose and GT

had signed a definitive agreement for a merger on Oct 5, 1997.

The proposed merger of these two companies fell apart on or about

December 5, 1997 when Microprose withdrew.

          20.  FASB Statement No. 86, Accounting for the Costs of

Computer Software to Be Sold, Leased, or Otherwise Marketed,

requires that all research and development costs are to be

expensed until the "technology feasibility" of the computer

software product has been established.  Royalties paid to

software developers for research and development of products

prior to establishing "technological feasibility" must be

expensed rather than capitalized.  Furthermore, FASB Statement

No. 86 requires that the unamortized capitalized costs of each

software product shall be evaluated at each balance sheet date

and the amount by which the unamortized capitalized costs exceed

the net realizable value of that asset shall be written off.

Accordingly, during the Class Period, GT improperly capitalized

the royalties paid to software developers for research and

development of products which did not achieve "technological

feasibility" and/or failed to write off the unamortized

capitalized costs (royalties paid) of software that exceeded the

net realizable value of that software.

          21.  Illustrative of GT's failure to disclose material

information to investors and its improper accounting treatment of

software royalties was its "deal" with Scavenger, Inc.

          22.  On November 28, 1995, GT entered into an agreement

with Scavenger, Inc., to develop four software games: Into the

Shadows, 4X Frenzy, Vertigo and Amok.  GT paid Scavenger advances

in the amount of $2.5 million under the foregoing agreement.  The

contractual relationship between GT and Scavenger fell into

disarray over the failure of Scavenger adequately and timely to

produce the requested software, which was initially due on

August 1, 1996.  GT contended that "Scavenger completely failed

to perform under the agreement; it has never to this day

delivered two of the games and the two games that were delivered

arrived late and failed to satisfy the requirements of the

agreement."

          23.  Scavenger filed a breach of contract lawsuit

against GT in the Supreme Court of the State of New York in

September of 1997.  In the lawsuit, Scavenger claims that GT

deliberately withheld further payments in December of 1996 and

that, as a direct result, Scavenger ceased business operations in

January of 1997.  GT's cross-complaint against Scavenger claims

that GT notified Scavenger on January 20, 1997 that Scavenger was

in breach of contract and failed to cure its breach.  On March

12, 1997, GT notified Scavenger that the time period in which to

cure its breaches had expired and the agreement was terminated.

GT fraudulently inflated its financial results for the first and

second quarters of 1997 by failing to take a write off for the

Scavenger project.

          24.  Instead of timely disclosing the foregoing

difficulties with the Scavenger project, GT's 10-K filed on March

31, 1997 affirmatively and materially misrepresented the then-

current status of GT's relationship with Scavenger.  GT's 10-K

discussed the retention of software developers such as Scavenger,

and discussed its current relationship with Scavenger: "designers

of Scorcher, Amok and Into the Shadows" even though Scavenger was

out of business in January, and GT, according to its own

allegations had terminated the contract on March 12, 1997.

Furthermore, GT never wrote off the monies it advanced to

Scavenger under the Scavenger agreement.  The payments to

Scavenger should never have been capitalized.  However, even if

such capitalization had been justified, the payments should have

been expensed when it became apparent, in 1996, that the

Company's relationship with Scavenger would terminate.  If the

advances had been written down in the third or fourth quarter of

1996 or the first quarter of 1997, as required by FASB Statement

No. 86 they would have had a material impact on GT's reported

earnings (see ¶ 19, supra).


Defendants' False and Misleading Information

          25.  During the Class Period, defendants inflated the

price of GT securities by publicly issuing false and misleading

statements and omitting to disclose material facts necessary to

make defendants' statements, as set forth herein, not false and

misleading.  Said statements and omissions were materially false

and misleading in that they failed to disclose material adverse

information and misrepresented the truth about the company.

          26.  GT's reported financial statements and reported

results for each quarter of the class period violated GAAP for

the following reasons, among others:

               a.   FASB Statement No. 86, Accounting for the

Costs of Computer Software to Be Sold, Leased, or Otherwise

Marketed, was violated;

               b.   The principle of adequacy and fairness of

disclosure was violated;

               c.   The principle of materiality concerning

information that is significant enough to affect evaluation or

decisions was violated (FASB Statement of Concepts No. 1 and No.

2);

               d.   The principle that the financial information

presented should be complete was violated (FASB Statement of

Concepts No. 2);

               e.   The principle that the substance rather than

the form of a transaction should be reflected was violated (FASB

Statement of Concepts No. 2);

               f.   The principle that items included in the

financial statements be reliably corroborated by outside evidence

(verifiability) was violated (FASB Statement of Concepts No. 2);

               g.   The principle that the financial statement

should contain and disclose relevant, understandable and timely

information for the economic decisions of the user was violated

(FASB Statement of Concepts No. 2);

               h.   The principle that the financial statement

provide reliable financial information about the enterprise for

the economic decisions of the user was violated (FASB Statement

of Concepts No. 1 and No. 2);

               i.   The principle that estimated losses should be

accrued was violated (FASB Statement No. 5);

               j.   The principles governing interim reporting

was violated (Accounting Principles Board Opinion No. 28).


Defendants' Knowing or Reckless Disregard of the
False and Misleading Financial Statements

          27.  Defendants' false representations and material

omissions were made with scienter in that: defendants knew or

recklessly disregarded that the public documents and statements

issued or disseminated by GT were materially false and misleading

as described above; knew or were reckless in not knowing that the

false financial results would be issued or disseminated to the

investing public; and knowingly and substantially participated in

the preparation and/or issuance or dissemination of such

statements or documents.  The following factors indicate that

defendants made the misrepresentations knowingly or with reckless

disregard for the truth:

               a.   GT's SEC filings referred to an existing and

ongoing relationship with Scavenger months after Scavenger had

gone out of business, and after GT informally had notified

Scavenger that Scavenger had breached the parties' agreement.

               b.   Throughout the Class Period, Defendant Cayre

sought to maintain the price of GT common stock so that he could

sell approximately 420,799 direct and 40,000 indirect shares at

artificially inflated prices for net proceeds of approximately $4

million.

          28.  Defendant Cayre is no stranger to exploiting and

manipulating the stock market for his own profit.  The November

12, 1997 issue of the Wall Street Journal article - entitled "The

Spin Desk: Underwriters Set Aside IPO Stock for Officials Of

Potential Customers --- Coincidentally or Otherwise, Work

Frequently Follows For the Investment Bank --- Bribery, or Just

Business?" - contained Defendant Cayre's admission that he had

participated, and even insisted on, the "spinning" of initial

public offering (IPO) shares in "roughly 400" various new issues.

Various investment banks allocated him such shares through his

brokerage account upon trading of the new issue.  This practice

resulted in significant profits to him.  One such example, was

the $2 million profit that he took in 1995 on 100,000 shares that

Robertson, Stephens allocated to him for the Pilar Animation

Studies IPO.  This practice, is at the very least, of

questionable legality.  The Securities and Exchange Commission

and the National Association of Securities Dealers are currently

investigating the practice of "spinning" as a violation of the

recipient's disclosure obligations as well as the "corporate

opportunity" doctrine. Defendant Cayre boasted that "[e]very

banker has given me great IPOs."


Inapplicability of Statutory Safe Harbor

          29.  The statutory safe harbor provided for forward-

looking statements under certain circumstances does not apply to

any of the allegedly false statements pleaded in this complaint.

Many of the statements pleaded herein were not specifically

identified as "forward-looking statements" when made.  To the

extent there were any forward looking statements, there were no

meaningful cautionary statements identifying the important then-

present factors that could and did cause actual results to differ

materially from those in the purportedly forward-looking

statements.  Alternatively, to the extent that the statutory safe

harbor does apply to any forward-looking statements pleaded

herein, defendants are liable for those false forward-looking

statements because at the time each of those forward-looking

statements was made, the particular speaker knew that the

particular forward-looking statement was false or misleading,

and/or the forward-looking statement was authorized and/or

approved by an executive officer of GT who knew that those

statements were false when made.

          30.  Any warnings contained in the press releases and

the financial statements quoted herein were generic statements of

the kind of risks that affect any high-tech computer company and

misleadingly contained no specific factual disclosure of any of

the looming problems with GT which placed GT's profitability and

growth at risk.


                AS AND FOR A FIRST CAUSE OF ACTION

         VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT
              AND RULE 10b-5 PROMULGATED THEREUNDER
                      AGAINST ALL DEFENDANTS

          31.  Plaintiff repeats and realleges each and every

allegation contained in the foregoing paragraphs as if fully set

forth herein.

          32.  At all relevant times, the defendants,

individually and in concert, directly and indirectly, by the use

and means of instrumentalities of interstate commerce and/or of

the mails, engaged and participated in a continuous course of

conduct whereby they knowingly and/or recklessly made and/or

failed to correct public representations which were or had become

materially false and misleading regarding GT's financial results

and operations.  This continuous course of conduct resulted in

the defendants causing GT to publish public statements which they

knew, or were reckless in not knowing, were materially false and

misleading, in order to artificially inflate the market price of

GT stock and which operated as a fraud and deceit upon the

members of the Class.

          33.  Defendant GT is a direct participant in the wrongs

complained of herein.  The Individual Defendants are liable as

direct participants in and as controlling persons of the wrongs

complained of herein.  By virtue of their positions of control

and authority as officers and directors of GT, the Individual

Defendants were able to and did, directly or indirectly, control

the content of the aforesaid statements relating to the Company,

and/or the failure to correct those statements in timely fashion

once they knew or were reckless in not knowing that those

statements were no longer true or accurate.  The Individual

Defendants caused or controlled the preparation and/or issuance

of public statements and the failure to correct such public

statements containing misstatements and omissions of material

facts as alleged herein.

          34.  The Individual Defendants had actual knowledge of

the facts making the material statements false and misleading, or

acted with reckless disregard for the truth in that they failed

to ascertain and to disclose such facts, even though same were

available to them.

          35.  In ignorance of the adverse facts concerning GT's

business operations and earnings, and in reliance on the

integrity of the market, plaintiff and the members of the Class

acquired GT common stock at artificially inflated prices and were

damaged thereby.

          36.  Had plaintiff and the members of the Class known

of the materially adverse information not disclosed by the

defendants, they would not have purchased GT common stock at all

or not at the inflated prices paid.

          37.  By virtue of the foregoing, defendants have

violated Section 10(b) of the 1934 Act and Rule 10b-5 promulgated

thereunder.


               AS AND FOR A SECOND CAUSE OF ACTION

           VIOLATION OF SECTION 20(a) OF THE EXCHANGE
              ACT AGAINST THE INDIVIDUAL DEFENDANTS

          38.  Plaintiff repeats and realleges each and every

allegation contained in the foregoing paragraphs as if fully set

forth herein.

          39.  This count is asserted against the Individual

Defendants and is based upon Section 20(a) of the 1934 Act.

          40.  The Individual Defendants, by virtue of their

office, directorship, stock ownership and specific acts were, at

the time of the wrongs alleged herein and as set forth in Count

I, controlling persons of GT within the meaning of Section 20(a)

of the 1934 Act.  The Individual Defendants had the power and

influence and exercised the same to cause GT to engage in the

illegal conduct and practices complained of herein by causing the

Company to disseminate the false and misleading information

referred to above.  Moreover, the Individual Defendants owned or

controlled substantial amounts of the Company's stock.

          41.  The Individual Defendants positions made them

privy to and provided him with actual knowledge of the material

facts concealed from plaintiff and the Class.

          42.  By virtue of the conduct alleged in Count I, the

Individual Defendants are liable for the aforesaid wrongful

conduct and are liable to plaintiff and the Class for damages

suffered.


                        PRAYER FOR RELIEF

     WHEREFORE, plaintiff demands judgment:

          1.   Determining that the instant action is a proper

class action maintainable under Rule 23 of the Federal Rules of

Civil Procedure;

          2.   Awarding compensatory damages as appropriate against

defendants, in favor of plaintiff and all members of the Class for

damages sustained as a result of defendants' wrongdoing;

          3.   Awarding plaintiff and members of the Class the

costs and disbursements of this suit, including reasonable

attorneys', accountants' and experts' fees; and

          4.   Awarding such other and further relief as the Court

may deem just and proper.

                           Jury Demand

          Plaintiff hereby demands a trial by jury.


Dated:   New York, New York
         January 7, 1998

                              KAUFMAN MALCHMAN KIRBY & SQUIRE, LLP


                              _________________________________
                              Jeffrey H. Squire, Esq. (JS 8910)
                              Ira M. Press, Esq. (IP 5313)

                              919 Third Avenue, 11th Floor
                              New York, New York  10022
                              (212) 371-6600

                                      and

                              LAW OFFICES OF LIONEL Z. GLANCY
                              Lionel Z. Glancy, Esq.
                              Peter A. Binkow, Esq.
                              Michael Goldberg, Esq.

                              1801 Avenue of the Stars #308
                              Los Angeles, California  90067
                              (310) 201-9150

                              Attorneys for Plaintiff and the Class

G:\FILES\C1\FILES\GTINTERA\COMP.D29/010798/2:58 pm


Securities Class Action
Clearinghouse
U.S.D.C.
N.D. Cal.
Robert Crown
Law Library
Stanford University
School of Law

inquiries@securities.stanford.edu

Source: File to epost from Kaufman Malchman Kirby & Squire, LLP