SEC Obtains Default Judgments Against Former Top Executives for Their Roles in Mexico-Based Homebuilder's $3.3 Billion Accounting Fraud
Litigation Release No. 25132 / July 2, 2021
Securities and Exchange Commission v. Gerardo de Nicolás et al., No. 3:17-civ-2086-JAH- AGS (S.D. Cal. filed Oct. 11, 2017)
On June 29, 2021, the U.S. District Court for the Southern District of California entered final judgments against four former senior officers of Mexico-based homebuilding company Desarrolladora Homex S.A.B. de C.V. who were previously charged for their role in the company's $3.3 billion accounting fraud.
The SEC's complaint against Homex's former Chief Executive Officer, Gerardo de Nicolás, former Chief Financial Officer, Carlos Moctezuma, former Controller, Ramón Lafarga, and former manager in the company's operations department, Noe Corrales, alleged that Homex's annual reports for 2010 through 2012 portrayed the company as productive and financially sound, and that de Nicolás and Moctezuma certified their accuracy, when in fact the defendants knew Homex was in a dire financial state. According to the complaint, Lafarga directed Corrales to create a false second set of books, through which the fraud - which involved falsely recognizing revenue from the purported sale of over 100,000 homes that, in fact, were neither built nor sold - was perpetrated. The SEC's complaint also alleged that de Nicolás 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 alleged that de Nicolás and Moctezuma hid the true nature of these loans from Homex's investors and mischaracterized them to Homex's auditors.
The judgments, entered on the basis of default, enjoined de Nicolás, Moctezuma, Lafarga, and Corrales from violating the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as the record-keeping and internal controls provisions of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. The judgments also enjoined de Nicolás, Moctezuma, Lafarga, and Corrales from aiding and abetting violations of the reporting, books and records, and internal control provisions of Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-16 thereunder. The judgments further enjoined de Nicolás and Moctezuma from violating the lying to auditors and certification provisions of Rules 13b2-2 and 13a-14 under the Exchange Act. The judgments include officer-and-director bars as to de Nicolás, Moctezuma, and Lafarga. De Nicolás is ordered to pay disgorgement of $851,318 plus prejudgment interest of $301,734 and a civil penalty of $12,407,200. Moctezuma, Lafarga, and Corrales are each ordered to pay a civil penalty of $160,000.
The SEC's litigation was led by Richard Hong, with assistance from the investigative staff who conducted the underlying investigation: Benjamin D. Brutlag, Andrew M. Shirley, Alfred C. Tierney, and Juan M. Migone, who were supervised by J. Lee Buck II.