Mexican homebuilder charged in $3.3B accounting fraud exposed by satellite images, SEC says
A Mexican homebuilding company, Desarrolladora Homex S.A.B. de C.V., has agreed to settle accounting fraud charges with the Securities and Exchange Commission after it allegedly falsified sales of over 100,000 homes to inflate revenue on its financial statements for three years in a row, claiming to have built homes for which satellite images showed not a trace.
Homex reported revenues from a project site in the state of Guanajuato, Mexico, where every planned home was supposedly built and sold by the end of 2011. However, satellite images of the project site in March 2012 showed it was still mostly undeveloped, the SEC found, and most of the purportedly sold homes had not yet been built.
Homex was one of the biggest homebuilders at the time in Mexico. The SEC accused the company of falsifying the number of homes it sold over a three-year period by around 317 percent. The SEC also claimed Homex pumped up its revenue numbers by 355 percent, to the tune of approximately $3.3 billion.
Homex filed for the Mexican equivalent of bankruptcy protection in April 2014. In October 2015, it emerged from bankruptcy under new equity ownership. Its then-CEO and then-CFO have been on unpaid leave since May 2016. The SEC noted that Homex has since undergone a number of changes and cooperated with the SEC’s investigation.
“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.”
The SEC has suspended trading in the American Depositary Shares of Homex. Without admitting or denying the charges, Homex consented to a final judgment permanently enjoining it from violating the securities laws, and the company agreed to be prohibited from offering securities in the U.S. markets for at least five years. The settlement is subject to court approval.
"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," Homex said in a statement, according to Reuters.
Homex did not immediately respond to a request for comment.