A federal appeals court has ruled that two former top executives of Gemstar-TV Guide International Inc., may seek to collect $37.6 million in severance payments that had been blocked by the Securities and Exchange Commission, according to Reuters.
The deciding issue for the court seemed to be the definition — or lack thereof — of “extraordinary payments” under the Sarbanes-Oxley Act of 2002.
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. 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 their severance payments by the following May, provided that they cooperated with an internal audit investigation and with the SEC.
But according to the Los Angeles Times, last year the SEC persuaded a federal judge to block the payments to the two former executives, who the commission accused of overstating Gemstar’s revenues. According to Section 1103 of Sarbanes-Oxley, Yuen and Leung could lose those payments if they were found to have violated securities laws, added the Times.
In last week’s decision, reported Reuters, a three-judge panel of the 9th Circuit Court of Appeals vacated a federal district court ruling that the scheduled payments to Yuen and Leung qualified as “extraordinary payments” subject to Sarbanes-Oxley. The court ruled two-to-one that since neither Congress nor the SEC has defined “extraordinary payments,” the government must prove “by admissible objective evidence” that the payments were out of line, added the Times.
In the majority opinion, Circuit Judge Carlos Bea wrote that “such payments may be called ‘golden parachutes’ or ‘golden handshakes’ in the press, but purple prose is not enough to prove a statutory requirement in court.”
In his dissent, Circuit Judge Stephen Trott argued that reversing the district court “deals an unwarranted blow” to the SEC’s ability to protect against corporate scandals, according to Reuters. “One would not expect benefits like these to be flowing from corporate assets to executives resigning under fire,” Trott reportedly added. “This scenario is not business as usual. It appears to be looting. If these mega-suspicious payments were not ‘extraordinary,’ the word needs either to be redefined or to be out of our dictionaries.”
Gemstar spokeswoman Christine Levesque told Reuters that the company had no comment, as it was reviewing the court’s ruling.
The appeals court stayed its order for 14 days to allow the SEC to file a more persuasive case, according to the newspaper. But for now, said Columbia University securities law professor John Coffee, “the majority position guts Section 1103” of Sarbanes-Oxley.