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SEC Sues Boylan, Others in Gemstar Fraud

The Securities and Exchange Commission has widened its net on former Gemstar-TV Guide International Inc. executives, claiming that former co-president Peter C. Boylan and two of his former Gemstar colleagues committed securities fraud.

The SEC said Monday that it filed civil complaints against Boylan, 39; former chief financial officer Craig Waggy, 44; and former general counsel Jonathan B. Orlick, 46, for falsifying Gemstar’s books and records and aiding and abetting Gemstar’s reporting and record-keeping violations of federal securities laws.

Boylan resigned as chairman of Liberty Media Corp.’s OpenTV Corp. Dec. 19, citing personal reasons. He is close to Liberty chairman John Malone, who named him president and CEO of the Liberty Broadband Interactive Television subsidiary in May 2002.

Waggy was CFO at OpenTV from November 2002-November 2003.

The government said the aim of the fraud was to inflate how much Gemstar was earning from licensing of and advertising on its interactive program guide, an aspect of the business Gemstar "repeatedly touted" as "the ‘value driver’ of the company’s stock."

The SEC said in a press release that its complaint, filed in U.S. District Court in Los Angeles, claimed that from June 1999-September 2002, "Gemstar overstated its total revenues by at least $248 million to meet its ambitious projections for revenue growth from IPG licensing and advertising."

The SEC claimed that IPG revenue was improperly reported from "expired, disputed or nonexistent agreements," and that IPG ad revenue was improperly reported "from related transactions as if they were unrelated transactions."

The SEC also said in the release, "Boylan structured two transactions unrelated to IPG advertising so that a portion of the amount to be paid to Gemstar was nominally and artificially allocated to the sale of IPG advertising."

The SEC said the complaint seeks permanent injunctions, civil money penalties and disgorgement of ill-gotten gains (including salaries, bonuses and any proceeds from the sale of stock during the fraud), and it bars the accused from service as an officer or director of a public company.

In the release, Randall R. Lee, regional director of the SEC's Pacific regional office, said: "These new charges reveal that the betrayal of the investing public by Gemstar's management was carried out not just by the former CEO and CFO, but with the participation and assistance of others in the executive suite. It's even more disturbing
that two of the defendants were also members of Gemstar's board, and that one of them was the general counsel of the company."

Boylan and Orlick were Gemstar directors during the period in question.

Gemstar responded to the SEC charges Monday by noting that none of the people who were charged currently works for Gemstar. "The company believes that it has resolved its past accounting issues and has taken significant steps toward the resolution of associated regulatory issues," Gemstar said in a prepared statement.

Liberty spokesman Mike Erickson declined to comment when asked what impact the SEC charges could have on Boylan’s and Waggy’s positions at Liberty. Orlick, Waggy and Boylan couldn’t be reached for comment.

In June, the SEC charged former Gemstar CEO Henry Yuen and CFO Elsie Leung with securities fraud.

Boylan and Waggy have been key drivers behind the consolidation of interactive-television vendors, overseeing Liberty’s deal to buy OpenTV and OpenTV’s acquisitions of Wink Communications Inc. and ACTV Inc.

Orlick -- who was promoted by new Gemstar CEO Jeff Shell from general counsel to president of intellectual property last January -- was fired by Gemstar June 5. Orlick sued Gemstar later that month, alleging that he was fired for cooperating with the SEC’s investigation into the company.