SEC Seeks to Freeze Gemstar Payments
Federal regulators asked a U.S. court Monday to block a $38-million severance payment to two top former executives of Gemstar-TV Guide International Inc. and suggested for the first time that they may have violated securities laws when they ran the company.
In documents filed in federal court in Los Angeles, the U.S. Securities and Exchange Commission said its investigation into Gemstar’s accounting practices turned up evidence that Henry Yuen, founder and former chief executive of Gemstar, and Elsie Leung, the former chief financial officer, “may have culpability for violations of the federal securities laws.”
The agency said its concern about Yuen’s “involvement in fraudulent activities” had “recently increased” when the Gemstar founder failed to testify before the SEC in early April, and then invoked the 5th Amendment privilege against self-incrimination during an April 23 deposition.
The SEC asked the court to freeze the $38 million -- scheduled to be paid today to the two executives -- for 45 days.
In the court papers, the SEC said keeping the money in escrow was necessary to “ensure the availability of these funds for future ... repayment to Gemstar or its shareholders.” In making the request, the agency invoked the powers granted by last year’s Sarbanes-Oxley law.
The SEC said if it establishes that Yuen and Leung violated securities laws, the court “may order disgorgement of their ill-gotten gains, including compensation and other benefits derived as a result of fraudulent financial reports.”
Stanley Arkin, the lawyer for both Yuen and Leung, did not return a phone call Monday.
Pasadena-based Gemstar, which owns TV Guide and produces electronic program guides, has seen its stock price plunge amid disclosures of aggressive accounting practices.
The SEC began its formal investigation in October, focusing on Gemstar’s bookkeeping practices from 1999 to Nov. 7, 2002, when Leung and Yuen ran the company.
The two were ousted from top management in the fall, when Yuen handed board control to one of Gemstar’s largest shareholders, News Corp. The media giant, controlled by mogul Rupert Murdoch, has since written down its entire $6-billion investment in the company.
Gemstar has restated $255.9 million in revenue.
Though they were forced out, the two fared handsomely.Gemstar agreed to stock and cash payments to Yuen and Leung totaling $56.7 million and $14.4 million, respectively.
The cash portions of the payments -- $29.5 million for Yuen and $8.2 million for Leung -- were placed in escrow because of the federal probe but were scheduled to be released today.
Yuen and Leung were kept on the payroll to encourage their cooperation with the ongoing investigation. But they were terminated “for cause” by Gemstar last month, after the SEC filed contempt charges against Yuen for failing to provide testimony.
In a statement, Gemstar supported the agency’s action Monday, saying the company continues to “fully cooperate.”
Arkin told reporters last month that unlike many other corporate chiefs across America, Yuen had not enriched himself, but had held on to his Gemstar shares because he was such a big believer in his vision: selling advertising on emerging TV programming guides.
But the SEC painted another portrait in the court documents filed Monday. The agency said that Yuen sold about 7 million Gemstar shares in April 2002, for about $70 million, just a few days after the first disclosure of aggressive accounting practices sent the stock downward.
Gemstar shares closed Monday at $4.29, up 6 cents, on Nasdaq.
