U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19047 / January 21, 2005
Accounting and Auditing Enforcement
Release No. 2176 / January 21, 2005
SEC v. Henry C. Yuen, et al., Civil Action No. CV 03-4376 MRP (PLAx) (C.D. Cal.)
FORMER GENERAL COUNSEL OF GEMSTAR-TV GUIDE INTERNATIONAL, INC. SETTLES SEC ACTION
The Securities and Exchange Commission today announced that on January 20, 2005, Jonathan B. Orlick, the former general counsel, executive vice president, and a member of the board of directors of Gemstar-TV Guide International, Inc. was permanently enjoined by consent from violating the antifraud and other provisions of the federal securities laws and ordered to pay a total of $305,510.62 in disgorgement, interest, and penalties. Additionally, Orlick was prohibited from serving as an officer or director of a public company for ten years. Orlick has also agreed, in a related administrative action, to be suspended from appearing or practicing before the SEC as an attorney. Orlick consented to the relief without admitting or denying the SEC's allegations.
Gemstar is a Los Angeles-based media and technology company that, among other things, publishes TV Guide magazine and develops, licenses, and markets an interactive program guide (IPG) for televisions that enables consumers to navigate through and select television programs. During the relevant period, Gemstar generated revenues from the IPG by licensing the technology to third parties and selling advertising on the IPG. In statements to securities analysts and the investing public, Gemstar repeatedly touted the IPG technology and IPG advertising revenues as the company's future and as the "value driver" of the company's stock, and downplayed expected declines in revenue from TV Guide magazine.
Orlick, of Chatsworth, California, served in several senior positions at Gemstar, including as general counsel. The SEC's complaint, filed in federal court in Los Angeles, alleges that from June 1999 through September 2002, Gemstar overstated its total revenues by at least $248 million to meet its ambitious projections for revenue growth from IPG licensing and advertising. The complaint further alleges that Orlick participated in Gemstar's fraudulent recording and disclosure of certain IPG licensing and advertising revenue. The complaint alleges that Orlick knew, but omitted to disclose, that Gemstar was improperly recognizing and reporting material amounts of licensing revenue from two companies. Additionally, the complaint alleges that Orlick participated in Gemstar's fraudulent recognition of this licensing revenue by repeatedly signing false management representation letters to Gemstar's auditors regarding the status of negotiations with one of the companies. Orlick failed to disclose material information regarding certain of Gemstar's IPG revenue. The complaint charges Orlick with securities fraud, falsifying Gemstar's books and records, aiding and abetting Gemstar's reporting and record-keeping violations, and lying to auditors in violation of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder.
In addition to being enjoined from violating, or aiding and abetting violations, of the above provisions of the federal securities laws, Orlick was also ordered to pay disgorgement of $150,000, representing a portion of his bonus during the relevant period, interest of $5,510.62, and a civil penalty of $150,000. The SEC will seek to have this money included in a fund established for harmed shareholders of Gemstar pursuant to Section 308 of the Sarbanes-Oxley Act of 2002. Orlick was also prohibited from serving as an officer or director of a public company for ten years. Additionally, in a related Rule 102(e) administrative proceeding, Orlick has agreed to be suspended from appearing or practicing before the SEC as an attorney.