The Securities and Exchange Commission (SEC) used satellite imagery to find evidence of fraud in the financials of Desarrolladors Homex SAB de CV, or Homex Development Corporation. According to the complaint for this securities class action, Homex reported that it had built a certain number of homes, but satellite photos at many of the locations showed vacant lots. The complaint thus claims that Homex’s financial reports contained false information on revenues, in violation of the Securities Exchange Act of 1934.
The class for this action is all persons and entities who acquired the publicly-traded American Depository Shares (ADSs) of Homex between April 30, 2012 and May 5, 2016.
Homex develops and builds housing properties in Mexico for entry level, middle income and upper income groups.
Homex’s internal accounting standards require that revenue can only be recognized for homes that attain “operada” (operated) status, with certification that the home was habitable and that the title had been transferred to the buyer. Thus the company’s own standards, as well as Mexican, Internation, and US financial reporting standards all require that a home be substantially constructed before Homex can recognize revenue from its sale.
The complaint quotes from the company’s Forms F-20 for the fiscal years ended December 31, 2011 and December 31, 2012, discussing revenues and numbers of homes sold during the two fiscal years. It also points out that both documents contained signed Sarbanes-Oxley certifications attesting to effective internal controls over financial reporting.
However, the complaint claims that the figures were false—that between 2010 and 2013, Homex overstated its revenue by roughly $3.3 billion or 355% and the number of units sold by over 100,000 units or 317%—and that the company had deliberately overstated these figures.
On April 30, 2014, news broke that Homex was filing for bankruptcy and the company’s stock fell by over 33.2%. Two days later, the New York Stock Exchange suspended the stock’s trading and announced it had applied to the SEC to delist the shares. When trading resumed, the shares fell another 55.5%.
On May 6, 2016, Homex filed a Form 6-K and announced that the SEC had decided for three enforcement actions, one against the company and the other two against the company’s CEO and CFO. The announcement mentioned possible charges of violations of anti-fraud, reporting, internal control, and books and records provisions of the Securities Exchange Act of 1934 in connection with certain revenues reported. Again, the shares fell, this time by over 10%.
On March 3, 2017, the SEC issued a press release stating that it was charging Homex with a $3.3 billion accounting fraud.