SEC Action Returns Former Gemstar CEO's Pending Severance Payment to Company and Shareholders
The Commission today announced a court ruling that successfully concludes its effort to stop a $29.5 million severance package from being paid to the former CEO of Gemstar-TV Guide International, Henry C. Yuen, who committed securities fraud before leaving his position at the Pasadena, Calif.-based company. The funds were previously set aside in an escrow account that will now be dissolved so that the money remains with the company and its shareholders.
The SEC was able to stop the large payment to Yuen through a provision in the Sarbanes-Oxley Act - Section 1103 - that allows the Commission to seek a temporary order from a federal district court requiring the company to hold "extraordinary payments" likely to be made to any officer, director, or affiliate of the company who is charged with a violation of the securities laws. The SEC charged Yuen with various violations of the federal securities laws in 2003, and he was later found guilty on all claims and forced to pay more than $22 million in financial penalties. This forfeiture of his severance payment will bring the total financial cost to more than $51 million for Yuen in the wake of his securities fraud violations.
"The SEC is committed to utilizing every provision in our securities laws to bring wrongdoers to justice. This important action keeps this substantial amount of money in the hands of the company and its shareholders where it belongs," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.
"This escrow perfectly achieved what Section 1103 was designed to do: prevent departing officers from reaping additional benefit from their fraudulent conduct," said Rosalind Tyson, Acting Regional Director of the SEC's Los Angeles Regional Office. "Yuen was stopped from taking $29.5 million on his way out the door under the cloud of an SEC investigation. This is a victory for the company's shareholders, who ultimately benefit from the return of these funds."
The U.S. District Court for the Central District of California ordered on March 27, 2008, that the $29.5 million be returned to the company. The district court had granted the SEC's application for an order pursuant to Section 1103 of the Sarbanes-Oxley Act on May 13, 2003, requiring Gemstar-TV Guide to escrow the pending payment to Yuen.
After obtaining the temporary order, the SEC sued Yuen for various violations of the federal securities laws. Following a three-week trial in December 2005, the court ruled in favor of the SEC against Yuen on all claims. Yuen committed securities fraud by making misrepresentations and omissions of material fact about certain Gemstar revenues, aiding and abetting Gemstar's primary violations of the periodic reporting and record keeping control requirements, and lying to the auditors. On May 8, 2006, the court ordered Yuen to disgorge more than $10.5 million in ill-gotten gains, pay prejudgment interest of more than $1.1 million, and pay a civil penalty of more than $10.5 million. On April 1, 2008, the Ninth Circuit Court of Appeals affirmed the district court ruling that Yuen committed securities fraud, and found that the financial penalties against Yuen were appropriate. (Press Rel. 2008-58)
In the Matter of Douglas G. Frederick
On April 8, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Douglas G. Frederick of San Diego, California, based on the entry of a permanent injunction in the civil action SEC v. Tuco Trading, LLC, et al., Civil Action No. 08 CV 00400 DMS (BLM) in the U.S. District Court for the Southern District of California.
On March 17, 2008, the U.S. District Court for the Southern District of California entered a Judgment of Permanent Injunction by consent, permanently enjoining Frederick from violating Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder.
The Division of Enforcement alleges in the Order that the Commission's complaint alleges that, from at least December 2007, in connection with the purchase and sale of securities, Frederick made false and misleading statements to traders of Tuco Trading about the equity balances of their sub-accounts at Tuco Trading. The complaint also alleges that Frederick knowingly provided substantial assistance to Tuco Trading regarding its acting as an unregistered broker-dealer.
A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations contained in the Order are true, to provide Frederick an opportunity to dispute the allegations, and to determine what, if any, remedial action is appropriate and in the public interest, pursuant to Section 15(b) of the Exchange Act. The Order requires the Administrative Law Judge to issue an initial decision not later than 210 days from the date of service of the Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice. (Rel. 34-57637; File No. 3-13004)
Proposed Rule Changes
The Chicago Board Options Exchange filed a proposed rule change (SR-CBOE-2008-02) and Amendment No. 1 thereto, pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, to replace references to certain committees with a reference to the exchange. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57629)
The Commission issued notice of a proposed rule change (SR-Amex-2008-30) and Amendment No. 1 thereto filed by the American Stock Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to amend the eligibility criteria for components of an index or portfolio underlying Portfolio Depositary Receipts and Index Fund Shares. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57631)
The International Securities Exchange filed a proposed rule change (SR-ISE-2008-29) under Rule 19b-4 under the Securities Exchange Act of 1934 relating to the Price Improvement Mechanism. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57632)
Accelerated Approval of Proposed Rule Changes
The Commission has approved, on an accelerated basis, a proposed rule change filed by Boston Stock Exchange (SR-BSE-2008-22) under Rule 19b-4 of the Securities Exchange Act of 1934 amending its Make or Take Linkage transaction fees. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57630)
The Commission granted accelerated approval to a proposed rule change (SR-NYSEArca-2008-35), as modified by Amendment No. 1 , submitted by NYSE Arca, through its wholly owned subsidiary, NYSE Arca Equities, Inc., pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, relating to Equity Index-Linked Securities. Publication is expected in the Federal Register during the week of April 14. (Rel. 34-57634)
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