Ex-Gemstar Execs Can’t Target SEC in Defense

Former Gemstar TV-Guide International Inc. executives facing securities fraud charges cannot pursue the defense that regulators have “unclean hands” from collaborating with Gemstar’s new management, a Los Angeles judge ruled earlier this week.

Former Chief Executive Henry Yuen and former Chief Financial Officer Elsie Leung sought an investigation into the Securities and Exchange Commission’s probe, including whether the agency colluded with Gemstar’s new management during the probe or coerced Gemstar’s new auditors to restate earnings after Yuen and Leung stepped down.

U.S. District Judge Mariana Pfaelzer granted the SEC’s motion to strike the majority of the so-called affirmative defenses. However, she allowed Leung and Yuen to investigate whether Los Angeles-based Gemstar destroyed documents that could have been crucial to their defense.

“The allegations asserted in that defense, if proved, would appear to raise a possible constitutional violation,” Pfaelzer wrote in her opinion, which was dated Monday.

Attorneys for Leung and Yuen argued that their clients’ due process rights had been violated with the alleged shredding.

A so-called affirmative defense is a defendant’s assertion of new facts and arguments that, if proven, could defeat the government’s claim even if all of the allegations in the complaint are true.

The SEC had argued in court papers that Leung and Yuen raised the defenses in an attempt to engage in “wasteful and irrelevant discovery” that would prolong the case.

In June the SEC filed civil fraud charges against Leung and Yuen in connection with what it called a “widespread and complex scheme” to inflate the company’s revenue.

The SEC has accused the pair of overstating revenue by $223 million over a two-year period.

Leung and Yuen, both of whom left the publisher of TV Guide in October, have denied the charges.

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Bloomberg News was used in compiling this report.