Judge Says Ex-Gemstar CEO Liable for Fraud

A federal judge in Los Angeles ruled that Henry Yuen, former chairman and chief executive of Gemstar-TV Guide International Inc., committed securities fraud and misled investors by inflating revenue at the company from 1999 to 2002, according to a judgment unsealed Monday.

The decision came three years after the Securities and Exchange Commission filed a civil case against Yuen in one of the highest-profile accounting scandals involving a Los Angeles company. Regulators said Yuen inflated Gemstar’s revenue to meet financial targets.

In her ruling, handed down last week, U.S. District Judge Mariana Pfaelzer said a preponderance of the evidence showed that Yuen withheld material information from Gemstar’s auditors and investors.

“Obviously, we’re very pleased with the ruling,” lead prosecutor Michael Piazza told Bloomberg News. The SEC will submit a proposed financial penalty for Yuen at a hearing April 3.

Yuen received about $100 million in salary, bonus and stock sales while lying to investors, the government said. That includes a $30-million severance package Yuen received when he was fired as Gemstar’s CEO in November 2002.

Yuen may appeal the ruling.

“I have great respect for Judge Pfaelzer,” said Yuen’s lawyer, Stanley Arkin. “I’ve lived with this case for 3 1/2 years, and I think her view of the facts was wrong.”

Separately, Yuen faces charges in a criminal case in which he is accused of destroying evidence the SEC had subpoenaed in the civil case.

Gemstar, which licenses electronic television guides for set-top boxes, is now controlled by Rupert Murdoch’s News Corp. In 2000, News Corp. became one of Gemstar’s largest shareholders when it merged TV Guide magazine into Gemstar.

After Gemstar disclosed to investors its accounting irregularities in April 2002, Murdoch led a board revolt that led to Yuen’s ouster that fall. Ultimately, News Corp. was forced to write off its entire $6-billion investment in Gemstar as the stock plummeted amid the accounting scandal.

Gemstar, which faced a host of patent and shareholder lawsuits, is still struggling to recover. The company paid $10 million in 2004 to settle claims by the SEC that it inflated revenue. The company also has restated or reversed its revenue by $357 million.

“Gemstar is pleased that the judge issued an order that holds Mr. Yuen accountable for his wrongful and inappropriate actions,” company spokeswoman Eileen Murphy said in a statement.

Gemstar was not a party to the SEC lawsuit against Yuen.

In the SEC case, the government alleged that Yuen and Gemstar’s former chief financial officer, Elsie Leung, who has since settled with federal regulators, artificially inflated revenue in part by accounting for sales that came from licensing agreements that were tied up in legal challenges.

Although Yuen contended that he relied on advice from Gemstar’s public accountant, KPMG, Pfaelzer found that Yuen “misrepresented to and withheld material information from the auditors.”

The judge had sealed Yuen’s deposition, testimony and her findings to protect his rights in the criminal case but unsealed them because of a legal challenge by the Los Angeles Times and Bloomberg News.

Yuen could face prison time if convicted in the criminal case.

To avoid a prison sentence, Yuen had struck a deal with the Justice Department to plead guilty to destroying documents and to pay a $250,000 fine, donate $1 million to charity and serve six months of home detention.

But Yuen withdrew his plea in January after U.S. District Judge John Walter said it was too lenient.

Gemstar shares fell 2 cents Monday to $2.96.