Supreme Court Rejects Executives’ Appeal of SEC’s Pay Freeze Order

The U.S. Supreme Court on Tuesday let stand a lower court ruling against two former Gemstar-TV Guide International, Inc. executives, allowing the Securities and Exchange Commission (SEC) to freeze their severance payments under a provision of the Sarbanes Oxley Act of 2002. The SEC, which is investigating accounting fraud at Gemstar, the owner of TV Guide, froze termination payments of $37 million to former Gemstar Chief Henry Yuen and top finance executive Elsie Leung while the investigation is pending, the Associated Press reported.

The SEC has accused the two former executives of inflating Gemstar’s revenue by at least $223 million, according to the Los Angeles Business Journal.

The SEC received a court order to block the severance payments in May 2003, the Business Journal reported. A panel of the 9th Circuit Court of Appeals reversed the order, but the full court later agreed to rehear the case and overturned the panel’s ruling.

Yuen and Leung appealed the case to the Supreme Court claiming that their termination payments did not meet the “extraordinary payments” standard set by the Sarbanes-Oxley law. Their attorneys also said that the SEC had used a “strained and erroneous interpretation,” according to the AP.

U.S. Solicitor General Paul Clement said in his Supreme Court filing that the appeals court ruling was consistent with the intent of Congress when it passed the Act, the AP reported.

Mr. Yuen reached an agreement with the Justice Department in a deal where he will plead guilty to a felony charge of obstructing a regulatory investigation into accounting irregularities, the AP reported earlier this month. Gemstar has filed objections to the plea agreement, and the agreement is under review by a federal judge.

Mr. Yuen and Ms. Leung still face civil charges and the AP reports that a trial has been scheduled in a California federal court in December.

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