The US Securities and Exchange Commission (SEC) is to take enforcement action against Mexico-based homebuilding company Desarrolladora Homex, after deploying satellite imagery to uncover a $3.3bn (£2.68bn) accounting fraud relating to the fake sales of more than 100,000 non-existent homes over a three-year period
The SEC alleges that Homex, one of the largest homebuilders in Mexico at the time, inflated the number of homes sold during a three-year period by approximately 317% and overstated its revenue by 355% (approximately $3.3bn billion).
Satellite imagery supported the SEC’s allegation that Homex had not even broken ground on many of the homes for which it reported revenues, after it unearthed shots that showed tens of thousands of purportedly built-and-sold homes were, in fact, nothing but bare soil.
The regulator’s s complaint highlights, for example, that Homex reported revenues from a project site in the Mexican state of Guanajuato where every planned home was purportedly built and sold by 31 December 2011. Satellite images of the project site on 12 Marc, 2012, show it was still largely undeveloped and the vast majority of supposedly sold homes remained unbuilt.
According to the SEC, Homex filed for the Mexican equivalent of bankruptcy protection in April 2014 and emerged in October 2015 under new equity ownership. The company’s then-CEO and then-CFO have been placed on unpaid leave since May 2016. Homex has since undertaken significant remedial efforts and cooperated with the SEC’s investigation.
Stephanie Avakian, acting director of the SEC’s enforcement division, said: ‘Homex deprived its investors of accurate and reliable financial results by reporting key numbers that were almost completely made up.
‘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.’
Separately, the SEC announced that the shares of Homex have been suspended until 17 March, citing ‘a lack of adequate and accurate information’ in the company's annual reports.
Under the terms of the settlement, Homex said that for a period of five years it will not participate in the US stock market and will not publish any financial or business information in English on its website or any other electronic information distribution service.
Mexico's National Bank and Securities Commission said it worked with the SEC during its investigation and levied a 12m peso (£500,000) fine on Homex in October 2015 for improperly preparing its financial statements.
Report by Pat Sweet
