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Game publisher Acclaim on verge of bankruptcy?

Insiders say the company will file for Chapter 7 protection after laying off hundreds.

Financially troubled game publisher Acclaim Entertainment is expected to file for Chapter 7 bankruptcy protection this week, after laying off more than 600 employees, according to sources closes to the company's management.

Company executives have not been available to comment on the reports, and no documents have been filed with the Securities and Exchange Commission. But the bankruptcy move is widely expected after Acclaim shut down its main office in Glen Cove, N.Y., last week, according to employees, and laid off most of its staff.

Acclaim has terminated more than 600 employees worldwide. Those employees, according to one high-ranking executive, were given no severance pay or package, no continuation of benefits, and no right to continue their own benefits through the federally mandated program commonly referred to as COBRA.

Despite an overall boom in the video game industry, Acclaim has struggled for the last few years, with expected hit titles failing to rack up big sales. The company switched CEOs last year and was dropped from the main Nasdaq Stock Market exchange.

The company reported a net loss of $56 million for its fiscal year ended March 31. Its stock is currently trading around 5 cents a share.

Acclaim's greatest attention recently has come from marketing gimmicks, such as a promotion promising $10,000 to parents who named their child after the star of Acclaim's latest "Turok" dinosaur-slaying game.

Some insiders saw the downfall coming for a long time. Said one now-former employee: "You can't put out less-than-competitive product for this long and not have it catch up with you."

Under Chapter 7 bankruptcy, Acclaim will likely ask the bankruptcy court to discharge most debts it currently carries, with creditors given a priority ranking by the administrative court and money distributed according to a court-ordered plan.

Curt Feldman reported for CNET's David Becker contributed to this report.