U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23964 / October 11, 2017
Securities and Exchange Commission v. Gerardo de Nicolás et al., No. 3:17-civ-2086-JAH- AGS (S.D. Cal. filed Oct. 11, 2017)
SEC Charges Former Top Executives for Role in Mexico-Based Homebuilder's $3.3 Billion Accounting Fraud
The Securities and Exchange Commission today announced charges against former senior officers of Mexico-based homebuilding company Desarrolladora Homex S.A.B. de C.V. for their roles in the company's $3.3 billion accounting fraud. Homex settled SEC charges earlier this year without admitting or denying allegations that it reported fake sales of more than 100,000 homes to boost revenues during at least a three-year period.
The SEC used satellite imagery to help uncover the accounting scheme and illustrate its allegation that Homex had not even broken ground on many of the homes for which it reported revenues.
According to the SEC's complaint, the multi-billion dollar financial fraud was masterminded by Homex's then-Chief Executive Officer, Gerardo de Nicolás, its then-Chief Financial Officer, Carlos Moctezuma, then-Controller, Ramón Lafarga, and Noe Corrales, then a manager in the company's operations department.
The complaint alleges that Homex's annual reports for 2010 through 2012, which were filed with the SEC, portrayed the company as productive and financially sound, and that de Nicolas and Moctezuma certified them when they knew Homex was in a dire financial state. The SEC's complaint also alleges that de Nicolas and Moctezuma caused Homex to enter into loan agreements with at least 13 Mexican banks, which Homex was able to repay only by additional bank borrowing, in check-kiting fashion. The SEC alleges that de Nicolás and Moctezuma hid the true nature of these loans from Homex's investors and mischaracterized them to Homex's auditors. The SEC's complaint alleges that Lafarga directed Corrales to create a false second set of books, through which the fraud was perpetrated.
Homex filed for the Mexican equivalent of bankruptcy protection in April 2014 and emerged under new equity ownership in October 2015. The SEC's complaint alleges that during the Mexican bankruptcy proceedings, de Nicolás and Moctezuma incorporated the allegedly fraudulent 2010-2012 financial reports into Homex's post-bankruptcy business plan, which they knew would be shared with the company's investors.
The SEC's complaint charges de Nicolás, Moctezuma, Lafarga, and Corrales with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, and with aiding and abetting Homex's violations Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-16 thereunder. The complaint also charges de Nicolas and Moctezuma with violating Rules 13b2-2 and 13a-14 under the Exchange Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus interest, civil penalties, and officer and director bars.
The SEC's continuing investigation is being conducted by Alfred C. Tierney, Benjamin D. Brutlag, Andrew M. Shirley and Juan M. Migone, and is being supervised by J. Lee Buck II. The SEC's litigation will be led by Richard Hong. The SEC appreciates the assistance of the Mexican Comisión Nacional Bancaria y de Valores.