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Supreme Court backs SEC on freezing payments

October 11, 2005

WASHINGTON (Reuters) – The U.S. Supreme Court on Tuesday
upheld the Securities and Exchange Commission’s power to freeze
payments to corporate executives during investigations of
possible securities law violations.

In a win for the SEC, the top court declined to hear an
appeal from a lower court brought by two former executives of
TV Guide publisher Gemstar-TV Guide International Inc..

“The decision confirms the SEC’s authority to prevent
companies from paying extraordinary amounts to officers and
directors who are under investigation by the SEC,” said Richard
Humes, SEC associate general counsel, in an interview.

In March, a federal appeals court in San Francisco said the
SEC did have the power to order that $37 million in payments to
the two former executives be frozen during a government probe.

Affirming a lower court, the 9th Circuit Court of Appeals
held that 2002′s post-Enron Sarbanes-Oxley reforms did permit
the SEC to put payments to company insiders in escrow during
investigations of possible securities law violations.

A California district court had earlier ordered in 2003
that Gemstar hold the $37 million in segregated bank accounts
for former Gemstar chief executive Henry Yuen and former
Gemstar chief financial officer Elsie Leung in connection with
a 2002 management restructuring.

The SEC sued Yuen and Leung in June 2003, alleging the two
schemed to inflate revenue at Gemstar by at least $223 million.
The case is set for trial for in December.




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