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The 9th U.S. Circuit Court of Appeals has ordered an en banc rehearing in the case of two corporate executives who sued the Securities and Exchange Commission for withholding their multimillion-dollar severance payments. The decision means that former Gemstar-TV Guide International Inc. executives Henry Yuen and Elsie Leung will have to fight again for the release of nearly $38 million held by the SEC while the company was under investigation. “We are pleased that the court has decided to grant a rehearing,” said Sandra Harris, associate regional director for enforcement for the SEC’s Los Angeles office. She declined further comment because the case is pending. Yuen and Leung sued the SEC in April 2003, seeking a return of the money. Under the Sarbanes-Oxley Act, such severance packages can be withheld while the SEC conducts an investigation. A divided 9th Circuit panel led by Judge Carlos Bea ruled in May that the executives were entitled to their severance pay, overruling a district court. Bea said there was no proof that the payments to both executives were excessive when compared to other corporate exit packages. “For all the persons involved in the negotiations, not one presented evidence before the district court that the period or mechanics of the negotiations were out of the ordinary in view of the circumstances,” Bea said. Judge Johnnie Rawlinson joined Bea. In an angry dissent, Judge Stephen Trott said that it’s easy to discern what constitutes an extraordinary payment — anything out of the ordinary. He also said the provision of Sarbanes-Oxley that allowed authorities to seize the funds of “potential wrongdoers” was necessary in a time of rampant corporate crime. “There is no need necessarily to engage in metaphysical inquiries about what is ordinary in another company or to look to some sort of an industry standard to ascertain the meaning of the provision,” Trott wrote. “One can simply look at the business of the issuer and determine whether the payments under scrutiny directly advance the issuer’s normal business objectives.” One attorney familiar with the case said he had expected the 9th Circuit to revisit the suit. “I thought the original decision of the 9th Circuit was unusual,” said the attorney, who declined to be named because he once had a brush with the case. He added that the court’s take on what constituted “extraordinary payments” showed little common sense. The SEC also sued both executives for securities fraud in June 2003, charging that Yuen and Leung coordinated a scheme to inflate Gemstar’s advertising and licensing revenue. New York attorney Stanley Arkin, of Arkin Kaplan, represents Yuen and Leung.

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