U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19022 / January 4, 2005
Securities and Exchange Commission v. TV Azteca S.A. de C.V., Azteca Holdings, S.A. de C.V., Ricardo Salinas Pliego, Pedro Padilla Longoria, and Luis Echarte Fernandez, Civil Action No. 1:05-CV-00004, (D.D.C.) (Filed January 4, 2005)
SEC BRINGS FRAUD ACTION AGAINST TV AZTECA, A MEXICAN ISSUER, ITS PARENT, AZTECA HOLDINGS, AND THREE CURRENT AND FORMER TV AZTECA OFFICERS AND DIRECTORS, RICARDO SALINAS PLIEGO, PEDRO PADILLA LONGORIA, AND LUIS ECHARTE FERNANDEZ
The Securities and Exchange Commission today filed in the United States District Court for the District of Columbia civil fraud charges against TV Azteca S.A. de C.V. (TV Azteca or the company), a Mexican issuer whose American depository receipts trade on the NYSE, its parent company, Azteca Holdings, S.A., de C.V. (Azteca Holdings), and three current and former TV Azteca officers and directors, Ricardo Salinas Pliego, Pedro Padilla Longoria, and Luis Echarte Fernandez. The SEC alleges in its Complaint that the defendants engaged in an elaborate scheme to conceal Salinas's role in a series of transactions through which he personally profited by $109 million. The SEC complaint also alleges that Salinas and Padilla sold millions of dollars of TV Azteca stock while Salinas's self-dealing remained undisclosed to the market place.
In its Complaint, the Commission alleged that Salinas and others caused TV Azteca or Azteca Holdings to file periodic reports that did not disclose Salinas's involvement in related party transactions between Unefon, a subsidiary of TV Azteca, and a private entity secretly co-owned by Salinas, called Codisco. In the related party transactions, Salinas purchased from a third party-at a steep discount-approximately $325 million of indebtedness owed by Unefon to the third party. At the time that Salinas purchased the indebtedness, he was aware that Unefon was in negotiations with another large telecom company which would provide substantial cash to Unefon, and enable Unefon to pay off the full amount of the indebtedness that Salinas had purchased at a discount. Only three months later, when Unefon closed the deal with the other telecom company, Salinas profited by $109 million upon Unefon's repayment of the debt at full value.
The Commission alleged that TV Azteca filed the false reports with the SEC, concealing Salinas' involvement in the Unefon debt transactions, despite receiving advice from its U.S. counsel that these transactions were material, reportable transactions under U.S. federal securities laws. While the company provided general disclosure of the transactions, it refused to reveal information crucial to investors: that Salinas was behind the transactions and personally profited from them. TV Azteca's resistance led to the eventual resignation of its U.S. counsel, who told the company's board of directors and management that it was resigning consistent with its obligations under Section 307 of the Sarbanes-Oxley Act.
The Commission further alleged in its Complaint that in various filings and public statements from June 2003 through January 2004, TV Azteca and its management discussed publicly the Unefon debt transactions while either failing to disclose Salinas's involvement, or, in several instances, falsely denying Salinas's involvement. For example, Salinas publicly denied any connection to Codisco in response to a query by the press regarding market concern that he may have been affiliated with Codisco. TV Azteca's U.S. legal counsel subsequently discovered the news article containing Salinas's false denial and advised Padilla that corrective disclosure was necessary. Despite the falsity of the statement, and the advice of counsel, the defendants did nothing to correct Salinas's false denial. Further, in communications with TV Azteca's independent directors, Salinas, Padilla and Echarte intentionally withheld information from, and even lied to the directors about Salinas's connection to the underlying transactions and his $109 million profit. Salinas and Padilla compounded their fraud by executing false Sarbanes-Oxley certifications.
The Commission further alleged in its Complaint that after the resignation of TV Azteca's U.S. legal counsel and a Dec. 24, 2003, New York Times article concerning the matter, Echarte sent an email to Salinas and Padilla, stating, "The damage is done and the situation that we didn't want to explain openly is now in the hands of the public." Shortly thereafter, on Jan. 9, 2004, TV Azteca issued a press release confirming that Salinas indirectly owned half of Codisco.
The Commission alleges in its Complaint that the defendants violated or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 13(d) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-14, 13a-16, 13b2-2, 13d-1 and 13d-2, thereunder. In its action, the Commission is seeking a final judgment enjoining the defendants from future violations of the federal securities laws, imposing civil money penalties, and ordering the defendants to furnish accountings and to disgorge their ill-gotten gains, plus prejudgment interest. The Commission also seeks in its actions orders barring Salinas and Padilla from serving as officers or directors of any publicly-held company with securities trading in the United States.
In a consent filed simultaneously with the complaint, Echarte settled the SEC's action against him by agreeing, without admitting or denying the complaint's allegations, to the entry of a final judgment permanently enjoining him from violating, and aiding and abetting violations, of Sections 10(b) and 13(a) of the Exchange Act, and Rule 10b-5 thereunder, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-16 thereunder. Echarte also has agreed to pay a civil penalty of $200,000 and disgorgement of $1.