SEC, Former Gemstar Execs May Settle

Federal regulators have reached a proposed settlement with two former top executives of Gemstar-TV Guide International Inc. who were accused of engaging in a scheme to inflate the company’s revenue by nearly $250 million.

A civil fraud lawsuit filed more than a year ago by the Securities and Exchange Commission against former Gemstar Chief Executive Henry Yuen and Chief Financial Officer Elsie Leung was scheduled to start next week. But on Friday, a U.S. District judge in Los Angeles halted the proceeding, pending approval of the proposed settlement by SEC commissioners, according to court documents.

The documents did not disclose the terms of the proposed agreement. Attorneys for the parties declined to discuss the case.

The SEC in 2003 accused Yuen and Leung of reporting false advertising sales to inflate revenue at Gemstar, publisher of TV Guide, by about $248 million from June 1999 through September 2002. Gemstar shares, which traded as high as $101.37 in March 2000, plummeted to $2.52 in September 2002 as losses mounted.

Hollywood-based Gemstar agreed to pay $10 million last year to settle an SEC inquiry into the company and paid an additional $67.5 million in cash and stock to resolve a shareholder lawsuit. KPMG, Gemstar’s former auditor, agreed to pay $10 million, the largest payment ever made by an accounting firm in an SEC case.

Two other executives sued by the SEC also settled their cases. Peter Boylan, Gemstar’s former chief operating officer, agreed to pay $600,000 last year. In December, lawyers for the SEC and former Gemstar General Counsel Jonathan Orlick stated that they too had reached a settlement, which still awaits approval from the SEC commissioners.

Rupert Murdoch’s News Corp. is Gemstar’s biggest shareholder, with a 41% stake. Gemstar also sells software that cable television companies use to provide on-screen programming guides.

Leung and Yuen, a mathematician and patent attorney who founded Gemstar, left the company in October 2002 and were replaced by executives backed by News Corp.

The SEC sought to place in escrow about $38 million in severance payments to Yuen and Leung under a provision of the Sarbanes-Oxley Act that allows the agency to freeze the assets of corporate officers under investigation. A federal appeals court last year ordered the funds to be released, a decision the SEC has appealed.

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Times staff writer Sallie Hofmeister and Bloomberg News reporter Joyzelle Davis contributed to this report.