Risk & Compliance

Mexican Homebuilder Accused of $3.3B Fraud

The SEC says Desarrolladora Homex faked sales of more than 100,000 homes, on many of which it had not even broken ground.
Matthew HellerMarch 3, 2017
Mexican Homebuilder Accused of $3.3B Fraud

Mexican homebuilder Desarrolladora Homex has been charged with reporting fake sales of more than 100,000 homes to inflate revenues in its financial statements by about $3.3 billion over a three-year period.

The U.S. Securities and Exchange Commission said it uncovered Homex’s “massive financial fraud” in part by using satellite imagery that showed the company had not even broken ground on many of the homes for which it reported revenues.

Homex personnel accomplished the fraud, the SEC said, by “manually entering false information into its internal accounting and financial systems.” Between 2010 and 2013, the number of homes sold was allegedly inflated by 355%.

As part of a settlement of the SEC’s civil charges, Homex — Mexico’s largest homebuilder before it filed bankruptcy in 2014 — agreed to a court order permanently enjoining it from violating U.S. securities laws and agreed to be prohibited from offering securities in the U.S. markets for at least five years.

“As alleged in our complaint, Homex deprived its investors of accurate and reliable financial results by reporting key numbers that were almost completely made up,” Stephanie Avakian, acting director of the SEC’s Enforcement Division, said in a news release.

“The settlement takes into account that the fraud occurred entirely under the watch of prior ownership and management, the company’s new leaders provided critical information regarding the full scope of the fraudulent conduct, and the company continues to significantly cooperate with our ongoing investigation,” she explained.

As The Financial Times reports, “Mexico’s homebuilding sector fell apart in mid-2013 after the government of Enrique Peña Nieto changed tack on the official housing policy, replacing a focus on home construction outside cities with a shift to urban developments. The ensuing halt to projects wiped out millions of dollars in value for the companies and plunged hombuilders Homex, Geo and Urbi into bankruptcy.”

The SEC singled out one Homex project site in Mexico where every planned home was purportedly built and sold by Dec. 31, 2011. “Satellite images of the project site on March 12, 2012, show it was still largely undeveloped and the vast majority of supposedly sold homes remained unbuilt,” according to the commission.

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