Gemstar Ex-CEO Didn’t Falsify Ad Sales, Lawyer Says

Henry Yuen, the former chief executive of Gemstar-TV Guide International Inc., didn’t make sham advertising sales to boost revenue to meet investors’ expectations, his lawyer said.

Yuen, 57, went on trial Wednesday in Los Angeles on Securities and Exchange Commission claims that he misled investors by inflating revenue by $248 million from 1999 to 2002. The company’s stock price has fallen 83% since it announced in April 2002 that it had booked revenue from ad swaps and fees it expected to recover in a lawsuit.

“Mr. Yuen may have been a pushy, tough fellow, but he always understood when to stop,” his lawyer, Stanley Arkin, said during opening arguments. “There was no clandestinity.”

Yuen has pleaded guilty to separate criminal charges that he destroyed documents sought by the SEC in the case. Gemstar, which is controlled by Rupert Murdoch’s News Corp., says the plea agreement, which calls for no jail time, is too lenient and has asked another U.S. attorney’s office to examine the allegations.

Los Angeles-based Gemstar, which publishes TV Guide and is the biggest maker of software that runs cable television program guides, and several of its former executives have reached settlements with the SEC.

Former Chief Financial Officer Elsie Leung, who was scheduled to be tried with Yuen, settled last week. Leung did not admit wrongdoing and settled to put the matter behind her, Arkin said.

The SEC says in the civil case that Yuen misled Gemstar auditors and investors by recording revenue from so-called round-trip advertising sales that didn’t bring in any money. Yuen also recognized revenue from expired contracts under the premise that the money would be recovered through future settlements.

“The responsibility of accurate financial statements is always that of senior management and in particular that of the chief executive,” SEC lawyer Michael Piazza said Wednesday in his opening statement.

Among the disputed advertising sales was an agreement with consumer electronics maker Thomson in which Gemstar would buy Thomson’s unsold inventory of electronic books at an inflated price so Thomson would use the extra money to buy advertising on Gemstar’s interactive program guide, Piazza said.

Arkin said there was nothing secret about the transaction and Gemstar’s auditors knew about it.