U.S. Securities and Exchange Commission Charges TV Azteca Chairman Ricardo Salinas Pliego with Stock Fraud
In early January, the US Securities and Exchange Commission (SEC) filed a civil lawsuit in a US federal court charging Mexico's second-largest television network TV Azteca, its chairman Ricardo Salinas Pliego, and two other executives with defrauding investors in the US and Mexico.
The SEC contends that Salinas reaped "a tremendous personal profit" by concealing from shareholders a complex debt scheme involving Azteca, its telephone subsidiary Unefon SA, and Codisco Investments--a third company formed by Salinas and an associate. US regulators require companies to disclose related-party transactions because they may involve conflicts of interest.
The SEC said Codisco Investments bought Unefon debt at a deep discount from Canada's Nortel Networks. Four months later, it sold the Unefon debt back at full price to TV Azteca, earning more than US$109 million in illicit profits.
The SEC launched an investigation into the transactions after a group of New York investors initiated legal action against Salinas and TV Azteca.
In the SEC lawsuit, regulators said Salinas "coordinated a scheme" to conceal his involvement in the transaction from investors, TV Azteca's board of directors, and financial-market regulators.
Also named in the suit were TV Azteca executives Pedro Padilla Longoria and Luis Echarte Fernandez. Padilla is the former director of TV Azteca, while Echarte currently heads the company's US subsidiary Azteca America. Echarte, a US citizen, eventually settled with the SEC by paying a civil fine of US$200,000. He neither admitted nor denied any wrongdoing.
Moises Saba Masri, Salinas' partner in Codisco Investments, was not named in the SEC lawsuit. The SEC, however, sued Saba and his broker Albert Sutton last year for allegedly manipulating the closing price of TV Azteca's US-traded shares in 1999 to avoid a US$4.3 million loss.
The current SEC lawsuit seeks to force Salinas to return any illicit profits and to bar the TV Azteca executive from holding a position of director or officer of any company whose shares trade on a US exchange.
The US federal court did not indicate when a ruling would be forthcoming.
Case to test SEC ability to regulate Mexican companies
The case is widely seen as a test of whether US authorities can force Mexican companies to comply with US rules when trading on US stock markets. TV Azteca, whose depository shares are listed on the New York Stock Exchange (NYSE), is a subsidiary of Azteca Holdings, a company controlled by Salinas.
These are the first charges brought by US securities regulators against a Mexican company after stricter US financial reporting standards were introduced under the Sarbanes-Oxley Act of 2002.
"Geographic boundaries will not protect those who seek to defraud investors, and all public companies, whether domestic or foreign, that choose to avail themselves of opportunities in US markets also have the responsibility to adhere to US securities laws," SEC enforcement officer Spencer Barasch told The Dallas Morning News.
The case is also considered a test of the US Sarbanes-Oxley Act of 2002, which encourages attorneys to notify directors about potential material violations of securities laws. The New York legal firm of Akin Gump Strauss Hauer & Feld withdrew as Azteca's legal representative in December 2003 after notifying the company's board of directors that Salinas may have violated US securities laws. …