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Unformatted text preview: CASE 1.10 GEMSTAR-TV GUIDE INTERNATIONAL, INC. Synopsis Born in war-torn China in 1948, Henry Yuen, known then as Che-Chuen, was forced to flee that country with his family. After Communist forces took over China, large numbers of supposed counter-revolutionaries were banished from the country, including Henrys father who moved his family and their few belongings to Hong Kong. Nearly five decades later, Henry Yuen found himself listed in the Forbes 400 with an estimated net worth exceeding one billion dollars. After immigrating to the United States, the low-key and studious Yuen earned a doctorate in mathematics as well as a law degree. At the age of forty, Yuen and a close friend teamed together to develop a simplified method for programming VCRs. That simple technology would eventually result in U.S. News and World Report labeling Yuen the Bill Gates of television. The company co-founded by Yuen, Gemstar, acquired almost one hundred patents that allowed it to control electronic programming and search technologies that are vital to companies in many industries. In 2000, Yuen acquired TV Guide International and renamed his company Gemstar-TV Guide International, Inc. (GTGI). Yuen and many other industry insiders expected that interactive TV would be the wave of the future in the television industry. Since electronic programming technology would be indispensable to creating interactive TV services, many securities analysts believed that GTGI would rack up huge profits as those services proliferated. Unfortunately for Yuen, to date interactive TV has been a bust. To conceal the discouraging financial performance of GTGIs over-hyped Interactive Platform division, Yuen and his key subordinates used a variety of methods to inflate that divisions operating results. Most of these methods involved fairly mundane accounting gimmicks designed to overstate the IP divisions revenues. KPMG audited GTGIs financial statements and, as a result, was caught up in the accounting fraud perpetrated by the companys management team. The SEC berated KPMG for its deficient audits of GTGI and for its failure to uncover the generally less-than-clever methods used to distort the companys operating results. The SECs investigation revealed that KPMG auditors often relied on management representations to support questionable revenue amounts when other, much more reliable evidence was available. Four KPMG auditorsthree partners and one managerwere sanctioned for their role in the repeated audit failures of GTGI. KPMG, as a firm, was slapped with a $10 million fine. 70 Case 1.10 Gemstar-TV Guide International, Inc. Gemstar-TV Guide International, Inc..--Key Facts 1. In 1988, Henry Yuen and a close friend developed VCR Plus, a new technology for programming VCRs; this technology would become the flagship product of Gemstar Development Corporation, a company that the two friends created....
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- Spring '11