Satellite Imaging Used to Uncover Massive Homebuilder Fraud in Mexico

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The U.S. Securities and Exchange Commission (SEC) recently announced that the Mexico-based homebuilder Desarrolladora Homex has agreed to settle fraud charges. According to these charges, the company reported fake sales for over 100,000 homes to boost revenues in its financial statements during a three-year period.

The agency used satellite imagery to help uncover the accounting scheme and illustrate its allegation that Homex had not even broken ground on many of the homes for which it reported revenues.

Allegedly Homex, one of the largest homebuilders in Mexico at the time, inflated the number of homes sold during the three-year period by roughly 317% and overstated its revenue by 355%, which comes out to approximately $3.3 billion.

The SEC’s complaint highlights that Homex reported revenues from a project site in the Mexican state of Guanajuato where every planned home was purportedly built and sold by December 31, 2011. However, satellite images of the project site on March 12, 2012, show that it was still largely undeveloped and the vast majority of supposedly sold homes remained unbuilt.

According to the complaint, 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, commented:

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. 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 separately issued a trading suspension in the securities of Homex. Without admitting or denying the allegations, Homex consented to the entry of a final judgment permanently enjoining the company from violating the antifraud, reporting and books and records provisions of the federal securities laws, and the company agreed to be prohibited from offering securities in the U.S. markets for at least five years.