Ex-Gemstar CEO Fined $22.4 Million

The former chief executive of Gemstar-TV Guide International Inc. was ordered Monday to pay $22.4 million for misleading investors by inflating the company’s revenue. It was one of the largest fines ever meted out against an individual for accounting fraud.

Henry Yuen also was permanently barred from serving as an officer or director of a public company by U.S. District Judge Mariana Pfaelzer in Los Angeles.

The decision came three years after the Securities and Exchange Commission filed a civil case against Yuen in one of the highest-profile accounting scandals involving a Southern California company.

“This is a serious penalty,” said Mike Piazza, the SEC’s lead lawyer on the case. “We are very pleased with the result.”

In March, after a three-week trial, Pfaelzer found Yuen liable for securities fraud, ruling that he misled investors and Hollywood-based Gemstar’s auditors while inflating revenue from 1999 to 2002. Gemstar’s stock price has fallen about 80% since the $248-million fraud was revealed.

Yuen plans to appeal the ruling. His attorney, Stanley Arkin, did not return a call Monday seeking comment on the penalty.

The SEC had sought a stiffer penalty of $60.9 million. The agency wanted Yuen to forfeit $15.7 million it said he made in bonuses and trading profit during the fraud and, in addition, to pay a civil penalty of equal size. The SEC also wanted Yuen to relinquish a $29.5-million severance payment received when he was fired as Gemstar’s chief executive in November 2002.

Gemstar, which publishes TV Guide and makes software to run cable-television program guides, is controlled by Rupert Murdoch’s News Corp.

In her Monday ruling, Pfaelzer found that Yuen was “unjustly enriched” by $10.6 million in bonuses and trading profit. She ordered him to repay that amount and to pay a civil penalty of $10.6 million, plus $1.2 million in interest.

She did not address the severance payment, but during a March hearing Pfaelzer said she wasn’t inclined to rule on it because Yuen did not have access to the money, which earlier had been frozen by the court.

The payment is a central issue in a pending wrongful termination case brought against Gemstar by Yuen. As part of that arbitration proceeding, Gemstar claims Yuen is not entitled to receive a severance package because of the alleged fraud.

Should Yuen win the severance pay, Pfaelzer could order him to relinquish the money, Piazza said.

Piazza said Pfaelzer’s findings also could be used by the U.S. attorney to bring new criminal charges against Yuen, who in January withdrew a plea agreement with prosecutors after a judge criticized it as too lenient. Yuen had agreed to six months of home detention for obstruction of justice in the SEC case.

Yuen admitted during testimony in the civil case that he destroyed his computer hard drive after being subpoenaed by the SEC.

Some attorneys involved in the Yuen case have criticized the U.S. attorney for not pursuing fraud charges against Yuen similar to those brought by the SEC.

“As far as we can tell, the only action taken by the U.S. attorney’s office with respect to Mr. Yuen is a plea agreement that was soundly rejected by yet another federal judge as being far too lenient,” said Kenneth Klein, a partner at law firm Hogan & Hartson in Los Angeles who represents Gemstar.

Gemstar was not a party to the SEC lawsuit against Yuen.