The Ninth U.S. Circuit Court of Appeals upheld a lower court’s ruling that the Securities and Exchange Commission had the right to freeze payments to two former executives of Gemstar-TV Guide International Inc. during a fraud investigation, reported the San Francisco Chronicle.
In October 2002, Gemstar announced that it would restate its financials from July 1999 through March 2002, and the SEC launched a probe into accounting irregularities at the media giant that led to a $223 million restatement. In November, chief executive officer Henry Yuen and chief financial officer Elsie Leung stepped down from their posts, though they remained on the Gemstar payroll. An agreement with the company called for them to receive severance payments totaling $37.6 million by the following May, provided that they cooperated with an internal audit investigation and with the SEC.
But according to the Los Angeles Times, in 2003 the SEC persuaded a federal judge to block the severance to Yuen and Leung, who the commission accused of overstating Gemstar’s revenues. The escrow of those payments — which an SEC lawyer said is still in effect, according to the Chronicle — would keep that money available for payment of fines or restitution to victims.
The two former executives had asserted that the SEC forced Gemstar to put the money into escrow without “constitutional due process necessary for the government to deprive a citizen of property,” and that neither Congress nor regulators had defined what constituted “extraordinary payments” that should be subject to escrow.
Earlier this year Yuen and Leung settled with the SEC on undisclosed terms, the Chronicle reported.