U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19558 / February 8, 2006
Accounting and Auditing Enforcement
Release No. 2374 / February 8, 2006
Securities and Exchange Commission v. Elsie M. Leung, U.S. District Court for the Central District of California, Civil Action No. CV 03-4376 MRP (PLAx)
Former Chief Financial Officer of Gemstar-TV Guide International, Inc. Settles SEC Action
The Securities and Exchange Commission today announced that Elsie M. Leung, the former chief financial officer of Gemstar-TV Guide International, Inc., agreed to pay over $1.3M to settle the SEC's charges alleging that she participated in a scheme to defraud investors by inflating Gemstar's licensing and advertising revenues. As part of the settlement, Leung, who also served as co-president, chief operating officer, and a member of the board of directors of Gemstar, will be permanently barred from serving as an officer or director of a public company.
Leung, age 59, of Pasadena, CA, agreed to pay a total of $1,364,866 in disgorgement, interest, and penalties and consented to the entry of a final judgment in the SEC's civil litigation against her in the United States District Court for the Central District of California. The final judgment, which is subject to approval by the Honorable Mariana R. Pfaelzer, permanently enjoins Leung from future violations of the federal securities laws, and orders Leung to pay disgorgement of $600,000, representing her ill-gotten bonus during the relevant period, pre-judgment interest of $14,866, and a civil penalty of $750,000. In addition to a permanent officer or director bar, Leung also consented to an SEC order barring her from appearing or practicing before the SEC as an accountant. Leung consented to the final judgment and SEC order without admitting or denying the allegations.
The SEC will seek to have the monies paid by Leung included in a fund established for harmed shareholders of Gemstar pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. The fund also includes payments from previous settlements by Gemstar and its former co-president and general counsel.
Gemstar is a Los Angeles-based media and technology company that publishes TV Guide magazine and 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.
The SEC's complaint, filed in June 2003, 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 Leung directed and approved Gemstar's fraudulent recording of IPG licensing and advertising revenue and approved fraudulent disclosure documents. The complaint alleges that Leung knew, but did not disclose, that Gemstar was improperly recognizing and reporting licensing and advertising revenue from seven companies and that she participated in fraudulently diverting revenue from one business sector to another to meet sector revenue projections. Additionally, the complaint alleges that Leung signed false management representation letters to Gemstar's auditors regarding the structure of certain transactions.
The complaint charges Leung with securities fraud, falsifying Gemstar's books and records, aiding and abetting Gemstar's reporting and record-keeping violations, and making false statements to auditors, in violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder.