Gemstar Condemns Ex-Chief’s Plea Deal

Gemstar-TV Guide International Inc. is deriding as “a slap on the wrist” the proposed sentence of its former chief executive, Henry C. Yuen, who pleaded guilty in a multimillion-dollar accounting fraud.

In court papers, the Los Angeles company argues that the six months of home detention recommended in Yuen’s plea agreement with the U.S. attorney’s office in Los Angeles is insufficient punishment.

“Yuen’s gross misconduct -- and subsequent coverup -- provide a textbook example of the conduct the task force was created to root out and punish,” Gemstar lawyers said in a filing, referring to a federal initiative to root out corporate fraud.

The company has incurred more than $100 million in legal fees and lawsuit settlements as a result of the “misconduct engaged in by Mr. Yuen’s management team,” Gemstar general counsel Stephen H. Kay said.

The plea agreement also would require Gemstar’s 57-year-old co-founder -- who helped invent a technology making it easier for viewers to record TV programs -- to pay a $250,000 fine and to make a $1-million contribution to charity.

Kay said Thursday that the court should consider “the extent of the damages suffered by the company and its shareholders before ruling on Mr. Yuen’s plea bargain.”

But defense lawyer Stanley S. Arkin said that the sentencing was about only one charge, the erasing of possible evidence from a computer hard disk, and that everything else was extraneous.

Arkin said that ever since the company and its major stockholder, News Corp., pushed his client out in 2002, Gemstar had been “petty and small, bitter and vindictive.”

One reason for the vindictiveness, Arkin said, was that Gemstar wanted to keep the $29.5 million in severance payments that were due Yuen but were frozen by the Securities and Exchange Commission in a civil lawsuit, which is scheduled for trial Dec. 6.

If U.S. District Judge John Walter decides to impose stiffer terms at Yuen’s Dec. 19 sentencing, Yuen can withdraw the plea and go to trial.

Yuen pleaded guilty last month to obstruction of justice for his role in overstating Gemstar’s revenue by $390 million and income by $350 million over three years. After Gemstar announced in April 2002 that it would restate its results, its market value plummeted by a third -- nearly $3 billion -- in a single day, Gemstar said.

During the same time, Yuen received $37 million in salary and bonuses and cashed in company stock for millions of dollars more, court documents said. Four days before public disclosure of the accounting problems, he sold 7 million shares for $59 million.

Yuen is one of a long list of top corporate managers accused of using irregular accounting, stock sales and other gimmicks to bolster their companies’ finances or line their own pockets.

The SEC is expected to weigh in on Yuen’s sentencing by early next week.

Gemstar highlighted the disparate treatment of Yuen by noting that lifestyle entrepreneur Martha Stewart received a much tougher sentence for obstructing justice in a stock fraud investigation in which she was trying to save herself $51,000 in stock trading losses.

Stewart served five months in prison, followed by five months of home detention. Yuen, Gemstar said, wouldn’t have to wear an electronic ankle bracelet, as Stewart did, to monitor his whereabouts.

Sentencing recommendations often reflect the strength of the prosecution’s case.

Thom Mrozek, spokesman for the U.S. attorney’s office in Los Angeles, said the plea bargain was the result of a long investigation, an analysis of the facts and negotiations between prosecutors and Yuen’s lawyer.

As part of the deal, the government will not prosecute any other former Gemstar executive on accounting or financial misconduct, freeing former Chief Financial Officer Elsie Leung of further criminal scrutiny.