Accounting & Tax

Gemstar Slapped with $10 Million Fine

Part of the levy is based on the company's alleged initial failure to cooperate with the SEC.
Stephen TaubJune 28, 2004

The Securities and Exchange Commission fined Gemstar-TV Guide International Inc. $10 million as part of a settlement stemming from charges that the company overstated its revenues by nearly $250 million.

Part of the fine is based on Gemstar’s initial failure to cooperate in the commission’s investigation or undertake remedial actions, according to the SEC, which has recently been rendering fines for such inaction.

On the other hand, the SEC gave the company credit for significant cooperation and remediation once it changed its senior management and restructured its corporate governance. “The magnitude of the improper conduct at Gemstar, together with its initial lack of effective cooperation or remedial efforts, warrant the imposition of a significant monetary penalty,” said Randall Lee, director of the SEC’s Pacific office. “At the same time, we have credited the company for its extensive cooperation once new management took control.”

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Gemstar’s leadership seemed to agree with at least the second part of the Lee’s assessment. In a press release, the company stated that it was “pleased to have reached an agreement with the SEC and to conclude this chapter in the company’s history. Since completing our management and corporate governance restructuring in November 2002, Gemstar-TV Guide has worked diligently to assist the SEC in its investigation.”

The SEC is continuing to pursue its case against former Gemstar senior management, Lee added.

Gemstar publishes TV Guide magazine and develops interactive program guide (IPG) technology that enables consumers to navigate through and select television programs.

The company generated revenues from the IPG by licensing the technology to third parties and selling advertising space on it. In its complaint, the commission’s alleges that Gemstar recorded revenue under expired, disputed, or non-existent agreements and improperly reported its as IPG licensing and advertising revenue.

The SEC also asserted the company recorded revenue from a long-term agreement on an accelerated basis that is inconsistent with Generally Accepted Accounting Principles (GAAP) and Gemstar’s own revenue- recognition policy.

The SEC also charged that Gemstar inflated its IPG ad revenue by improperly recording and reporting amounts from multiple-element transactions. That was improper under GAAP because Gemstar could not determine the IPG advertising’s fair value, the SEC alleged.

The SEC also asserted that the company improperly recorded and reported IPG advertising revenue from non-monetary and barter transactions and improperly booked IPG advertising revenues when those revenues were actually derived from print-advertising sales.