• Lawyers as Gatekeepers: SEC Sanctions Gemstar General Counsel
  • March 10, 2005 | Author: Cullen M. (Mike) Godfrey
  • Law Firm: Jackson Walker L.L.P. - Austin Office
  • The SEC has severely sanctioned another General Counsel. On January 21, 2005, the SEC announced the terms of a settlement with Jonathan B. Orlick, the former Executive Vice President, General Counsel and Secretary of Gemstar-TV Guide International, Inc. (SEC Litigation Release No. 19047) Orlick was also a member of the Gemstar board.

    According to the release, Gemstar is a media and technology company that publishes TV Guide and "develops, licenses, and markets an interactive program guide (IPG) for televisions...." The company touted IPG as the "value driver" of the company's stock. According to the SEC, from June 1999 through September 2002 Gemstar overstated its total revenues by at least $248 Million to meet growth projections for IPG licensing and advertising, and the SEC alleged that Orlick knew that the company was improperly recognizing and reporting licensing revenue. It was also alleged that Orlick repeatedly signed false representation letters to the company's outside auditors regarding the status of negotiations with another company from which Gemstar was reporting licensing revenue.

    The SEC charged Orlick with securities fraud, falsifying Gemstar's books and records, aiding and abetting Gemstar's reporting and record-keeping violations, and lying to auditors in violation of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder.

    As part of the settlement, Orlick has been enjoined from violating, or aiding and abetting violations, of securities laws, and Orlick was ordered to pay $305,510.62, representing $150,000 in disgorgement of a prior bonus, $5510.62 interest, and a $150,000 civil penalty. In addition, Orlick may not serve as an officer or director of a public company for a period of ten years, and he has been suspended from appearing or practicing before the SEC. Orlick consented to the penalties but neither admitted nor denied liability.

    The March issue of Corporate Counsel magazine quotes an SEC spokesman as saying, "Lawyers for public companies serve a vital role as gatekeepers to our financial markets. The sanctions in this case reflect the seriousness with which we view breaches of the public trust by attorneys." While the facts alleged against Orlick indicate an active participation in Gemstar's material overstatement of revenues, the SEC's continued description of lawyers as "gatekeepers" underscores a continuing shift of a lawyer's duties to the marketplace and not just to the organization.