Reversing an SEC decision that had been based on a section of Sarbanes-Oxley, a federal appeals court ruled last week that two former Gemstar-TV Guide executives could seek $37.6 million in severance payments and back pay.

Yuen

The executives, former CEO Henry Yuen and former CFO Elsie Leung, left Gemstar in November 2002 amid a restructuring that followed the disclosure of an SEC probe into accounting problems.

During the probe, the SEC successfully petitioned a federal court to freeze payments to Yuen and Leung. The freeze was based on Section 1103 of SOX, which states that during investigations into securities violations, the Commission could force companies to escrow "extraordinary payments" that might be made to certain probe subjects.

However, last week a California court of appeals flipped that decision, noting that "there was no evidence as to what would be an ordinary payment under comparable circumstances."

At the same time, the court did not seek to overthrow the SEC's temporary freeze authority. "We do not decide whether Section 1103 of Sarbanes-Oxley is unconstitutionally vague," noted Judge Carlos T. Bea, "or operates in an unconstitutionally retroactive manner."

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