PHH v. CFPB Litigation Looks to be Long Drawn Out Affair

April 6, 2017 by Melissa L. Lucar, Esq.

A Mexican homebuilding company has agreed to a settlement that prohibits its shares from being traded on the New York Stock Exchange after the company overestimated revenues by $3.3 billion and fabricated data that showed it had completed 100,000 in new home sales.

The U.S. Securities and Exchange Commission (SEC) claims that representatives of Desarrolladora Homex SAB de CV purposefully falsified key data in an internal accounting system that could be seen by shareholders. At the time, the homebuilder was one of the largest in Mexico. The SEC claims that over a three-year period, the homebuilder overstated revenues by 355% and falsified the number of homes sold by about 317 percent.

The company recorded excessive losses and ultimately filed for bankruptcy protection under Mexican law in 2014. Now under new post-bankruptcy ownership, Homex executives cooperated with the SEC’s Enforcement Division in its investigation. The previous CEO and CFO are on unpaid leave, along with other changes in management that were made by the new ownership.

Under terms of the agreement, Homex agreed to not offer any securities in the U.S. for a period of five years and is enjoined from violating any United States securities laws.

Officials were able to prove that the homebuilder never constructed the tens of thousands of homes claimed through the use of satellite images that showed vacant lots where the company claimed houses were being built.

The satellite images were from Guanajuato, Mexico, where Homex claimed it sold and built homes through the end of 2011. Images used by the SEC, however, detail a host of unfinished homes as well as empty lots as of March 2012, and many of the homes reportedly sold were never constructed.

“As alleged in our complaint, Homex deprived its investors of accurate and reliable financial results by reporting key numbers that were almost completely made up,” said Stephanie Avakian, acting director of the SEC’s Enforcement Division, in a statement. “The settlement takes into account that the fraud occurred entirely under the watch of prior ownership and management, the company’s new leaders provided critical information regarding the full scope of the fraudulent conduct, and the company continues to significantly cooperate with our ongoing investigation.”

Despite the SEC’s acknowledgment of positive changes within the organization, the company must still abide by established U.S. regulations. The SEC has halted trading in America Depositary Shares of Homex. The homebuilding company agreed to the settlement, without admitting or denying the charges and is awaiting court approval.

According to Reuters, Homex issued a statement saying, “The company will abide by the SEC resolution and continue to collaborate with the Commission and will provide any information requested by the authority relating to third parties.”

Contact the author Melissa L. Lucar for more information.