SEC, U.S. Prosecutors Clash Over Plea Deal
In a rare split, the Securities and Exchange Commission is at odds with its partner in cleaning up corporate accounting -- the Justice Department -- over a plea agreement with the former chief of Gemstar-TV Guide International Inc.
The SEC’s criticism of Henry Yuen’s sentence as too lenient played a role in U.S. District Judge John Walters’ decision last week to tentatively reject a deal between Yuen and the Justice Department.
Yuen has pleaded guilty to destroying documents sought by the SEC as part of an investigation into a $248-million accounting fraud at Los Angeles-based Gemstar, now controlled by Rupert Murdoch’s News Corp.
As part of the deal, Yuen agreed to pay a $250,000 fine, donate $1 million to charity, receive three years of probation and serve six months of home detention.
Although the agency did not ask the judge to reject Yuen’s deal, SEC attorney Michael Piazza made his objections clear during a Dec. 19 hearing.
“We echo the court’s concerns about the message that this sentence, as suggested by the government and the defendant, would send,” according to a transcript.
Randall Lee, the SEC’s Pacific regional director, also conveyed the agency’s concerns in a letter to the probation office. Portions of the letter were read at the hearing.
Yuen “intentionally and willfully destroyed key evidence relevant to a core issue in the investigation, his knowledge of and participation in the fraud at the company,” Lee wrote. “As a result, the commission’s efforts to uncover the fraud at Gemstar were impaired.”
In his preliminary decision to reject the deal, Walter singled out the SEC letter as “particularly impressive.” The judge criticized the proposed deal, saying it “does not reflect the seriousness of this offense” and “fails to afford adequate deterrence of criminal conduct.”
The sentencing dispute marks a rare schism between the SEC and the Justice Department, which have worked closely in a series of accounting fraud cases since the collapse of energy giant Enron Corp. in 2001. The SEC pursues civil cases, often against many of the same defendants facing criminal charges filed by the Justice Department.
“The public nature of this spat is highly unusual and does not reflect well on interagency cooperation,” said Jacob Frenkel, a former SEC enforcement lawyer and federal prosecutor.
The matter also has put the Justice Department, known for its prosecution of Martha Stewart and ex-WorldCom Inc. chief Bernard J. Ebbers, in the unusual position of being on the defensive.
Thom Mrozek, a spokesman for U.S. Attorney Debra Yang in Los Angeles, Thursday defended the plea deal as a “resolution that meets the needs of justice.”
As for the SEC, he said, the agency was “within its rights” to address the court because it was a victim in the case.
In a Nov. 4 filing, Gemstar called Yuen’s proposed sentence a “slap on the wrist” and “a travesty of justice.” The company has been pushing hard for a tougher sentence. Last month it asked federal prosecutors in Florida to investigate allegations of wrongdoing by Yuen.
In a statement issued Thursday, the company said it had fully cooperated with the SEC and “continues to support the government in its efforts to hold Gemstar’s former executives accountable for their acts.”
Also Thursday, the company sued an insurer, seeking to recover $50 million in liability coverage Gemstar claims it is due to help cover judgments stemming from shareholder lawsuits.
Yuen’s attorney, Stanley S. Arkin, said the plea was “carefully and thoughtfully worked out over a long period of time” and represented an “understandable and fair disposition of the charge.”
The SEC also is pursuing a civil case against Yuen in Los Angeles. The agency filed fraud claims against him and ex-Chief Financial Officer Elsie Leung, alleging that they overstated company revenue to increase the company’s stock. Leung settled and Yuen has denied the claims.
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Associated Press was used in compiling this report.
