Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.1 Page 1 of 35 1 2 3 4 5 6 7 8 9 10 11 RICHARD HONG (N.Y. Attorney Reg. No. 2503589) Email: HongR@sec.gov J. LEE BUCK, II (D.C. Bar No. 421878) Email: BuckJL@sec.gov ALFRED C. TIERNEY (Cal. Bar No. 274265) Email: TierneyA@sec.gov BENJAMIN D. BRUTLAG (N.Y. Attorney Reg. No. 4596698) Email: BrutlagB@sec.gov Attorneys for Plaintiff SECURITIES AND EXCHANGE COMMISSION Melissa R. Hodgman, Associate Director 100 F Street N.E. Washington, DC 20549 Telephone: (212) 336-0956 (Hong) 12 UNITED STATES DISTRICT COURT 13 SOUTHERN DISTRICT OF CALIFORNIA 14 15 16 17 18 19 20 21 22 23 24 SECURITIES AND EXCHANGE COMMISSION, ) ) ) Plaintiff, ) vs. ) ) GERARDO DE NICOLÁS ) GUTIÉRREZ, CARLOS JAVIER ) MOCTEZUMA VELASCO, RAMÓN ) LAFARGA BÁTIZ, and NOE ) CORRALES REYES, ) ) Defendants. ) ) Case No. '17CV2086 JAH AGS COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS JURY TRIAL DEMANDED 25 26 Plaintiff, United States Securities and Exchange Commission (“SEC” or 27 “Commission”), alleges and states as follows: 28 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.2 Page 2 of 35 SUMMARY 1 2 1. This is a financial fraud case. Beginning by 2010 and continuing into 3 May 2016, four senior officers and employees of the homebuilder company 4 Desarrolladora Homex, S.A.B. de C.V. (“Homex” or “the Company”) engaged in a 5 multi-billion dollar fraud to create and sustain the illusion that Homex had built 6 and sold tens of thousands of homes annually that, in fact, it had neither built nor 7 sold. Across Homex’s 2010 through 2012 fiscal years alone, the fraud’s 8 overstatements totaled at least USD $3.3 billion (MXN $44 billion) in revenue, or 9 355%, and at least 100,000 in units sold, or 317%. 10 2. To create this illusion, Homex’s then-Chief Executive Officer 11 (“CEO”), Gerardo de Nicolás (“de Nicolás”), and its then-Chief Financial Officer 12 (“CFO”), Carlos Moctezuma (“Moctezuma”), first approved annual reports 13 submitted to the SEC for Homex’s 2010 through 2012 fiscal years that painted a 14 highly productive, financially rosy picture of Homex. This picture, however, was 15 directly contrary to the markedly unproductive, financially dire picture, detailed 16 17 below, with which both were contemporaneously familiar. As the Company 18 subsequently filed for bankruptcy and pursued reorganization, de Nicolás and 19 Moctezuma again incorporated these prior periods’ financials into Homex’s post20 bankruptcy business plan, which was shared, as de Nicolás and Moctezuma knew it 21 would be, with investors. 22 3. The fraud was committed through a false second set of books, created 23 by, among others, Noe Corrales (“Corrales”), a then-manager in the Company’s 24 operations department, on instructions from the Company’s then-Controller, 25 Ramón Lafarga (“Lafarga”). This second set of books was kept in particular 26 portions of Homex’s financial databases to which de Nicolás strictly limited access 27 to himself, Moctezuma, Lafarga, and a very small number of their subordinates, 28 1 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.3 Page 3 of 35 1 including Corrales. The particular false entries in this second set of books included 2 (i) manually entered false revenue from tens of thousands of fictitious home sales 3 over multiple years, as well as (ii) corresponding manually entered false cost-of4 sales and inventory information. 5 4. It was essential to the fraud’s continuation and concealment to employ 6 deceptive conduct that could generate cash and, at the same time (i) limit the 7 abnormal growth of the accounts-receivable balance resulting from the fictitious 8 home sales and (ii) create the false appearance of normal operations. Defendants 9 de Nicolás and Moctezuma engaged in this deceptive conduct by causing Homex 10 to enter into purported non-recourse factoring agreements with at least 13 Mexican 11 banks concerning at least USD $7.5 billion (MXN $97 billion) in Homex’s 12 purported accounts receivable. As de Nicolás and Moctezuma knew, but concealed 13 from and mischaracterized to the Company’s investors, these agreements were in 14 reality short-term loans, which Homex was able to repay only by using the 15 proceeds of new, similar agreements. 16 5. In addition, de Nicolás made profits and avoided losses from selling 17 18 Homex securities, including during the first half of 2013, while participating in the 19 financial fraud at the Company. Moreover, de Nicolás, Moctezuma, Lafarga and 20 Corrales each profited from the fraud, as it facilitated the Company’s capital 21 raising, delayed its bankruptcy, and, in the case of de Nicolás, Moctezuma and 22 Corrales, forestalled their terminations. 23 6. By engaging in this scheme, de Nicolás, Moctezuma, Lafarga, and 24 Corrales each violated the antifraud provisions of the Securities Act of 1933 25 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”), as 26 well as books and records and internal accounting controls provisions of the 27 Exchange Act. In addition, de Nicolás, Moctezuma, Lafarga, and Corrales aided 28 2 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.4 Page 4 of 35 1 and abetted Homex’s violations of the periodic reporting, books and records and 2 internal accounting controls provisions of the Exchange Act; and de Nicolás and 3 Moctezuma also violated the lying-to-auditors and annual report certification 4 provisions of the Exchange Act. 5 7. Unless restrained and enjoined by this Court, de Nicolás, Moctezuma, 6 Lafarga, and Corrales will likely continue to engage in this type of violative 7 conduct. The SEC accordingly seeks (a) injunctions against future violations; (b) 8 disgorgement of ill-gotten gains and statutory money penalties; and (c) officer and 9 director bars. 10 JURISDICTION AND VENUE 11 8. This Court has jurisdiction over this action pursuant to Securities Act 12 Sections 20(b), 20(d)(1), and 22 [15 U.S.C. §§ 77t(b), 77t(d)(1), and 77v] and 13 Exchange Act Sections 21(d), 21(e), and 27 [15 U.S.C. §§ 78u(d), 78u(e), and 14 78aa]. 15 9. Defendants, directly or indirectly, made use of the means or 16 17 instrumentalities of interstate commerce or the mails, or a facility of a national 18 securities exchange in connection with the transactions, acts, practices, and courses 19 of business alleged in this Complaint. 20 10. Venue is proper in this District pursuant to Section 22(a) [15 U.S.C. § 21 77v(a)] of the Securities Act and Section 27(a) of the Exchange Act [15 U.S.C. § 22 78aa(a)]. Certain of Defendants’ acts, practices, and courses of business alleged in 23 this Complaint occurred within this District. 24 25 DEFENDANTS 11. Gerardo de Nicolás Gutiérrez, age 48, is a Mexican citizen residing 26 in Mexico. He served as Homex’s CEO from 1997 through September 30, 2006, 27 and again from July 2007 until May 5, 2016, when he took a leave of absence from 28 3 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.5 Page 5 of 35 1 his position as CEO. As discussed below, de Nicolás possessed the power to direct 2 or cause the direction of the management and policies of Homex. In addition, he 3 controlled the day-to-day affairs of Homex and possessed and exercised, directly or 4 indirectly, the power to direct or cause the direction of the management and 5 policies of Homex. He was later terminated by the Company. 6 12. Carlos Javier Moctezuma Velasco, age 46, is a Mexican citizen 7 residing in Mexico. He served as Homex’s CFO from December 2009 until May 8 5, 2016, at which time Moctezuma took a leave of absence from his position as 9 10 11 12 13 14 15 16 CFO. He was later terminated by the Company. 13. Ramón Lafarga Bátiz, age 57, is a Mexican citizen residing in Mexico. He served as Homex’s Controller and Administrative and Accounting Officer from at least 2009 until he left the Company in April 2014. Since 1992, Lafarga has been licensed as a public accountant in Mexico. 14. Noe Corrales Reyes, age 47, is a Mexican citizen residing in Mexico. He served as a manager in Homex’s Operations department until he resigned from 17 the company in October 2016. Corrales holds an inactive license as a public 18 accountant in Mexico. FACTUAL ALLEGATIONS 19 20 I. BACKGROUND 21 15. Homex was founded in 1989 in Culiacán, Sinaloa, Mexico, and 22 incorporated in 1998 under the Mexican Companies Law. Through at least 2013, 23 Homex purported to be the largest real estate development company in Mexico. 24 16. Homex was founded by several members of the de Nicolás family, 25 which owned approximately 34% of the Company until significant sales of the 26 family’s shareholdings in the first half of 2013 reduced its percentage ownership to 27 28 4 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.6 Page 6 of 35 1 approximately 17% by June 2013. Homex’s CEO at all relevant times, de Nicolás, 2 was among the members of that same de Nicolás family. 3 17. In May 2016, following Homex’s public disclosure of the SEC 4 investigation that has led to the filing of this action, de Nicolás stepped down as 5 CEO and board member, was placed on unpaid administrative leave, and was later 6 terminated from the Company’s employ. Also in May 2016, Homex’s CFO at all 7 relevant times, Moctezuma, likewise stepped down from the CFO role, was placed 8 on unpaid administrative leave, and was later terminated from the Company’s 9 employ. 10 18. Homex’s equity securities were dually listed on the New York Stock 11 Exchange (“NYSE”) and the Mexican Stock Exchange (“BMV”). Homex offered 12 and sold hundreds of millions of dollars in debt securities, including two $250 13 million issuances, in 2005 and 2009 (maturing in 2015 and 2019, respectively), and 14 a $400 million bond issuance in February 2012. 15 19. In 2013, only one year after its last public debt offering, Homex began 16 17 defaulting on its debt obligations and repeatedly failed to file timely reports with 18 the Commission. Homex eventually filed for Mexico’s equivalent to bankruptcy 19 reorganization in April 2014. 20 20. In June 2014, Homex’s American Depositary Shares (“ADSs”) were 21 delisted from the NYSE (after being suspended from NYSE trading the previous 22 month), but thereafter continued to be quoted for U.S. trading on the over-the23 counter markets. 24 21. Homex exited from bankruptcy through a Court Judgment issued on 25 July 3, 2015, and its Reorganization Plan became effective on October 23, 2015. 26 27 28 5 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.7 Page 7 of 35 1 22. Upon request by the Company, on December 9, 2016, the American 2 Depositary Receipt facility for Homex’s ADSs was terminated. Homex’s ADSs 3 are no longer quoted for U.S. trading on the over-the-counter market. 4 II. RELEVANT ACCOUNTING POLICIES 5 23. As Defendants each knew or were reckless in not knowing, for its 6 fiscal years 2010 through 2011, Homex prepared its financial statements in 7 accordance with Mexican Financial Reporting Standards (“MFRS”), and, for its 8 fiscal year 2012, Homex prepared its financial statements in accordance with 9 International Financial Reporting Standards (“IFRS”). For purposes of its 2010 10 and 2011 annual filings of Forms 20-F with the Commission, as Defendants 11 likewise knew or were reckless in not knowing, Homex reconciled its consolidated 12 reports of net income, including revenues, and its consolidated stockholder’s equity 13 to U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). 14 24. In its annual filings on Form 20-F for the fiscal years 2010, 2011, and 15 2012, each approved and certified by de Nicolás and Moctezuma (and signed by 16 17 the latter), Homex stated that revenues from the Company’s home sales were 18 recognized only upon the fulfillment of certain conditions, including “control” of 19 the home having been transferred to the homebuyer and it having become probable 20 that the Company will “receive the economic benefits associated with the 21 transaction.” 22 25. As all Defendants knew, or were reckless in not knowing, at all 23 relevant times, Homex’s internal accounting policies and procedures further 24 provided that revenue could be recognized only for homes that attained “Operada” 25 status. In order to attain this status, various conditions had to be fulfilled, including 26 third-party certification that the home had become habitable (i.e., that the home had 27 been built) and that transfer of title to the buyer had occurred. 28 6 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.8 Page 8 of 35 1 26. Accordingly, under U.S. GAAP, IFRS, and Homex’s own disclosures 2 and internal policies and procedures, and as all Defendants knew or were reckless 3 in not knowing, a home had to be substantially constructed before Homex could 4 meet the criteria above and recognize revenue for its sale. 5 III. HOMEX’S INTERNAL SYSTEMS, RECORDKEEPING, FINANCIAL REPORTING PROCESS, AND ACCOUNTING 6 CONTROLS 7 8 27. At all relevant times, and as all Defendants knew or were reckless in 9 not knowing: (i) as part of normal operations, Homex employees entered 10 operational and financial data concerning the construction and sale of homes into 11 an internal system called the “Sistema Integral de Administración” (the “SIA” 12 system); (ii) the SIA system was composed of several modules, e.g., the 13 Operations, Sales, Construction, and Treasury Modules, dedicated to the specific 14 type of data entered therein; (iii) during the course of day-to-day operations, 15 numerous Homex employees across Mexico entered data into SIA’s Construction, 16 Sales, and Operations Modules that accurately reflected the true progress of home 17 construction, sales, and revenue collection, respectively; (iv) unlike other modules, 18 which tracked information down to the specific house level, the Treasury Module 19 tracked revenue from home sales only at the project level, i.e., it did not keep data 20 concerning sales of specific homes; and (v) access to SIA’s Treasury Module was 21 limited to certain persons in Homex’s headquarters, including de Nicolás, 22 Moctezuma, and Lafarga, and a tightly limited number of their subordinates, 23 24 including Corrales. 25 28. At all relevant times, and as all Defendants knew or were reckless in 26 not knowing: (i) for operational purposes, data entered into the SIA system was 27 viewed and analyzed through a proprietary interface called the Sistema de 28 Informacion Gerencial (“SIG”); and (ii) for finance and accounting purposes, 7 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.9 Page 9 of 35 1 information in the SIA was purportedly automatically exported to the “Contpaq” 2 system, a commercial software system used to process accounting information and 3 consolidate financial statements. 4 29. As all Defendants knew or were reckless in not knowing: (i) at the end 5 of a financial reporting period, Homex’s financial reporting procedures provided 6 that the financial and accounting information entered and maintained in the SIA 7 system during the reporting period, including home sale revenue information, was 8 automatically exported into Contpaq; and (ii) once exported into Contpaq, that 9 10 11 12 13 14 15 16 information was then consolidated into financial statements used for financial reporting purposes, including Homex’s annual filings with the Commission on Form 20-F. 30. As all Defendants knew or were reckless in not knowing at all relevant times: (i) de Nicolás maintained and exercised unilateral authority to limit Homex employees’ access to information in the SIA and Contpaq systems; (ii) de Nicolás limited almost all employees’ access so that they were able to view or 17 enter only information that was directly related to their respective roles within the 18 Company, e.g., employees working on a particular real estate project could enter 19 and view data concerning only that project and were restricted from entering or 20 viewing data from other projects; similarly, employees could access only 21 information concerning their department; and (iii) de Nicolás permitted only 22 himself, Moctezuma, and Lafarga unrestricted access to the information in all of 23 Homex’s systems, including the SIA and Contpaq systems. 24 IV. HOMEX’S FRAUDULENT ACCOUNTING SCHEME 25 A. Materially Misstating Revenues Associated With Home Sales 26 31. From 2010 through the third quarter of 2013, Defendants knowingly 27 or recklessly engaged in a scheme to materially overstate Homex’s revenues, 28 8 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.10 Page 10 of 35 1 homes sold, and other related financial items. During fiscal years 2010 through 2 2012, this scheme overstated the Company’s revenue by at least USD $3.3 billion 3 (MXN $44 billion) or 355%, and overstated its number of units sold by over 4 100,000 units, or 317%, as illustrated by the following chart: 5 OVERSTATED REVENUES AND UNITS SOLD FISCAL YEARS 2010-2012 6 (Revenue Figures in Millions of MXN $) 7 FY 2010 8 FY 2011 FY 2012 TOTAL 2010-2012 Revenue Unit Sales Revenue Unit Sales Revenue Unit Sales Revenue Unit Sales 9 As Reported on Form 20-F $18,465 44,347 $20,210 52,486 $18,809 42,945 $57,484 139,778 10 Actual Results $6,456 16,977 $3,981 11,006 $2,200 5,536 $12,637 33,519 11 Revenue / Units Overstated $12,009 27,370 $16,229 41,480 $16,609 37,409 $44,847 106,259 12 % Overstatement 186% 161% 408% 377% 755% 676% 355% 317% 13 14 32. Homex, de Nicolás, and Moctezuma made the aforementioned 15 material misstatements publicly in (i) numerous filings with the Commission 16 identified in Exhibit 1 hereto, each of which de Nicolás and Moctezuma approved, 17 and/or signed, including Homex’s annual reports on Form 20-F for fiscal years 18 2010 through 2012, as well as all of the financial reports Homex furnished on Form 19 6-K during 2010 through the third quarter of 2013; and (ii) in Homex’s public 20 offering documents concerning its February 2012 issuance of $400 million in 21 corporate bonds, which, as de Nicolás and Moctezuma knew or were reckless in 22 not knowing, incorporated prior year financial statements that Homex had filed 23 with the Commission, including for the fiscal year 2010. 24 25 26 27 28 33. In connection with each of the aforementioned annual reports that Homex filed with the Commission, de Nicolás and Moctezuma each signed certifications indicating that each had reviewed the document, and that the financial statements and other financial information included therein fairly 9 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.11 Page 11 of 35 1 presented in all material aspects the financial condition, results of operations, and 2 cash flows of Homex. As discussed below, both de Nicolás and Moctezuma knew 3 or were reckless in not knowing that Homex’s publicly filed financial statements 4 fraudulently and materially overstated the company’s revenues and that Lafarga 5 and Corrales aided and abetted the making of those misstatements. 6 B. Manually Making Fraudulent Top-Line Revenue and Cost Entries Concerning Fictitious Home Sales 34. Lafarga, Corrales, and at least one other Homex employee acting at 7 8 9 10 11 12 13 14 15 16 Lafarga’s direction, knowingly or recklessly uploaded false information into the Company’s internal reporting and accounting systems in order to carry out the fictitious revenue scheme. Specifically, contrary to the Company’s internal controls, policies, and procedures, in preparing the financial statements, these Homex personnel did not use the information accurately captured within SIA’s Construction, Sales, and Operations Modules, which was to be automatically exported to Contpaq. Rather, Corrales, at the direction of Lafarga manually 17 entered false revenue – including tens of thousands of fictitious home sales over 18 multiple years – into SIA’s Treasury Module prior to that information being 19 exported to Contpaq. Subsequently, the false, inflated revenue data was uploaded 20 into Contpaq for financial reporting purposes. 21 35. Corrales, again at the direction of Lafarga, maintained a spreadsheet 22 that tracked the fictitious home sales that had been manually entered into SIA’s 23 Treasury Module. Corrales and others used this spreadsheet, which was 24 maintained outside of Homex’s internal systems, to ensure that fictitious revenue 25 from manually entered home sales was not double-booked and the scheme would 26 remain hidden. 27 28 10 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.12 Page 12 of 35 1 36. In order to conceal the manually-entered fictitious revenues, at least 2 one other Homex employee acting at the direction of Lafarga also manually 3 entered corresponding false cost-of-sales and inventory information into Contpaq. 4 These manual entries were necessary to sustain the fraud because the cost-of-sales 5 information corresponding to the fictitious revenues, likewise being fictitious, was 6 never entered into the SIA system in the normal course of Homex’s operations, 7 and, therefore, never exported to Contpaq. 8 9 10 11 12 13 14 15 16 37. Taken together, (i) the fictitious home sale-filled SIA Treasury Module, (ii) Corrales’ spreadsheet tracking the same, and (iii) the corresponding false cost of sales and inventory information manually entered into Contpaq, were key components of Homex’s false second set of books. 38. On June 13, 2013 – only three weeks after Homex filed its annual report on Form 20-F for its 2012 fiscal year – Moctezuma received an email from a subordinate in the financial reporting department attaching a spreadsheet comparing “real” home sales (which the spreadsheet called “unidades realizadas”) 17 with “accounting” home sales (which the spreadsheet called “unidades 18 contabilidad”) for the Company’s ten largest real estate developments by reported 19 revenue. The spreadsheet reflected that, for each of those top ten projects, the 20 “accounting” home sales were significantly greater than the Company’s actual 21 home sales. According to the spreadsheet, five of the ten projects had, in fact, had 22 no sales at all, yet had “accounting” sales ranging between 345 and 1,655 homes. 23 For all ten projects, the spreadsheet showed the Company had in fact sold just 24 1,682 homes, from which it had realized revenue totaling just (MXN) $1.19 25 million, while its “accounting” numbers (10,152 home sales for (MXN) $6.469 26 million in revenue) were more than five times greater than the Company’s actual 27 results for those projects. 28 11 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.13 Page 13 of 35 1 39. Corrales, Lafarga, and Moctezuma thus each knew or were reckless in 2 not knowing that Homex had a false second set of books; that this false second set 3 of books contained greatly overstated sales and revenue figures; and that these 4 materially overstated figures were used in Homex’s financial reporting. 5 C. Homex Recognized Revenue for Unbuilt Homes 6 40. By means of the scheme detailed above, Defendants caused Homex to 7 claim to investors that it had built and sold thousands of homes that, in fact, it had 8 not built. Homex’s Real Estate Project 877 (named “Benevento” and located in the 9 10 11 12 13 14 15 16 Mexican state of Guanajuato) is illustrative. During the investigation leading to the filing of this action, Moctezuma identified Benevento to the SEC, in a sworn declaration, as one of the Company’s top ten real estate projects by revenue. Moctezuma also attached to that declaration Benevento’s project plan (identifying the location, block and lot number of each planned housing unit), and details (by block, lot number, sale price and sale date) of the Benevento sales the Company had included in the financial statements it had filed with the SEC on Form 20-F. 17 These documents reflected that, by December 31, 2011, all of Benevento’s planned 18 units had been built and sold, and that Homex had recognized and reported revenue 19 for the same. Satellite images taken in March 2012, however, reveal that hundreds 20 of those very same Benevento units remained unbuilt. (See Exhibit 2 attached 21 hereto). 22 D. Deceptive Conduct to Generate Cash and Limit Accounts Receivable Under a False Guise of Normal Operations 41. The fraud could not have continued for as long as it did without 23 24 25 deceptive conduct that generated cash, limited the growth of the accounts26 receivable balance from the fictitious home sales, and projected the false 27 appearance of normal operations. Defendants de Nicolás and Moctezuma engaged 28 12 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.14 Page 14 of 35 1 in this deceptive conduct by causing Homex to enter into purported non-recourse 2 factoring agreements with at least 13 Mexican banks concerning at least USD $7.5 3 billion (MXN $97 billion) in Homex’s purported accounts receivable. 4 42. As de Nicolás and Moctezuma knew or were reckless in not knowing, 5 genuine non-recourse factoring agreements typically function as follows: a 6 business having accounts receivable for which eventual payment is certain, but 7 needing cash more quickly, “factors” those accounts receivable by trading with a 8 third party the business’s right to future collection of those receivables in exchange 9 10 11 12 13 14 15 16 for a discounted, immediate up-front payment. The agreement’s “non-recourse” nature means the business is not obligated to make the third party whole for any uncollected accounts receivable. For accounting purposes, such non-recourse factoring agreements enable the business to immediately reduce its accounts receivable balance and increase its cash balance, without incurring any additional liabilities or accounts payable. 43. de Nicolás and Moctezuma signed scores of Homex’s purported non- 17 recourse factoring agreements that they knew, or were reckless in not knowing, 18 could only be paid off using proceeds of new “non-recourse factoring” agreements, 19 in check-kiting fashion. However, they further knew or were reckless in not 20 knowing that the agreements in question were not true non-recourse factoring 21 agreements at all but instead contained a recourse provision requiring Homex to 22 replace (as collateral for its scheduled repayments) any non-performing account 23 receivable with a performing one. 24 44. As de Nicolás and Moctezuma further knew or were reckless in not 25 knowing, the factoring agreements’ payment schedules well exceeded the 26 substantially shorter timing of payments from the Mexican government-backed 27 mortgage lenders who financed substantial portions – as much as 80% – of 28 13 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.15 Page 15 of 35 1 Homex’s home sales. These extended payment schedules belied the factoring 2 characterization of the agreements by requiring Homex to finance an unnecessarily 3 lengthy repayment period. 4 45. Mischaracterizing the nature of the factoring agreements to auditors 5 and investors served the dual purpose of allowing Homex to reduce material 6 amounts of both liabilities and accounts receivables. As de Nicolás and 7 Moctezuma knew or were reckless in not knowing, the Company incurred billions 8 of dollars in undisclosed and unaccounted for liabilities in connection with the use 9 10 11 12 13 14 15 of these purported non-recourse factoring agreements into which they caused Homex to enter. Moreover, during that same period and as both Defendants knew or were reckless in not knowing, the Company used the factoring agreements to improperly reduce material amounts of its then-growing accounts receivable balance. This practice effectively concealed the fact that the Company’s accounts receivable were actually growing at a rate disproportionate with normal operations. 16 46. As a result of de Nicolás’s and Moctezuma’s mischaracterization of 17 the factoring agreements, Homex’s Forms 20-F for fiscal years 2010 through 2012 18 contained no disclosure of any “with-recourse” factoring agreements. Instead, 19 Homex’s Forms 20-F for fiscal years 2010 through 2012 disclosed a total of only 20 two factoring arrangements, both of which were without recourse and therefore 21 lacked any payment or guarantor-like obligation on Homex’s part. Further, de 22 Nicolás and Moctezuma likewise failed to disclose to Homex’s outside auditor the 23 existence of any “with-recourse” factoring agreements. Accordingly, de Nicolás 24 and Moctezuma caused Homex to treat, for accounting purposes, the “with 25 recourse” factoring agreements as though they were “non-recourse”, by, among 26 other things, refraining from recording any liabilities or accounts payable related to 27 them. 28 14 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.16 Page 16 of 35 1 E. 2 Signing and Certifying Forms 20-Fs and 6-Ks, and Endorsing a Bond Circular, Presenting a Financial Picture Directly at Odds With Facts the Defendants Knew 3 4 47. From 2010 through the third fiscal quarter of 2013, de Nicolás and 5 Moctezuma reviewed and approved on a quarterly basis Homex’s financial 6 statements prior to their being filed with the SEC. Throughout that same period, de 7 Nicolás and Moctezuma both annually certified that, based on their knowledge, 8 Homex’s annual reports filed with the Commission on Form 20-F, which both 9 approved and Moctezuma signed, did not contain any material misstatements or 10 omissions. de Nicolás and Moctezuma also approved, and Moctezuma (as well as 11 Lafarga) signed, quarterly during the relevant period publicly filed earnings 12 releases containing the Company’s financial statements furnished to the 13 Commission on Form 6-K. Additionally, in February 2012, de Nicolás and 14 Moctezuma approved a private bond offering circular that incorporated prior year 15 financial statements that Homex had filed with the Commission, including for the 16 fiscal year 2010. 17 48. As Homex’s senior most managers and decision makers having 18 unfettered access to the Company’s operational and financial systems, de Nicolás 19 and Moctezuma, as a matter of business practice, regularly monitored, reviewed, 20 and analyzed the Company’s accurate operational and financial information and 21 utilized it to make operational and financial decisions. 22 49. Both routinely reviewed, for example, “key reports” generated by the 23 24 Operations, Sales, and Construction Modules in Homex’s SIA system. These 25 reports included detailed information concerning home sales, accounts receivable, 26 revenues, expenses, status of construction, and construction quality. Both routinely 27 discussed these key reports with members of the “First Circle” – a small group of 28 senior managers who reported directly to de Nicolás – during weekly meetings. de 15 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.17 Page 17 of 35 1 Nicolás also met monthly or bi-monthly with the Company’s head of real estate 2 operations and others to monitor the progress of the Company’s real estate 3 development projects, including home sales, deliveries, and mortgage collection 4 data. In addition, de Nicolás and Moctezuma regularly sent and received, via 5 email, detailed operational information to and from members of the First Circle and 6 others. Moreover, de Nicolás routinely communicated directly with Homex real 7 estate development project managers throughout Mexico. In these 8 communications, de Nicolás frequently requested and received detailed daily 9 reports, posed specific detailed follow-up questions, and followed up again on the 10 responses he received. 11 50. The information that de Nicolás and Moctezuma received through the 12 aforementioned monitoring, review, meetings, reports, and emails was detailed, 13 frequently focused on specific projects, and concerned the Company’s true 14 financial and operational performance in real time. As de Nicolás and Moctezuma 15 knew or were reckless in not knowing, however, the accurate information starkly 16 17 contradicted representations contained in the Company’s financial statements and 18 SEC filings from 2010 through the third fiscal quarter of 2013, and representations 19 incorporated into the Company’s 2012 bond-offering circular. 20 51. For example, de Nicolás’s email communications with Homex project 21 managers include: 22 a) a May 2011 daily report informing de Nicolás that, as of May 3, 2011, 23 in a Homex project that was among the Company’s top ten projects by 24 revenue, just 10 homes had been sold since April 1, despite a 25 Company goal of 1,225 home sales in that project during the quarter 26 ending June 30, 2011; 27 28 16 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.18 Page 18 of 35 b) a June 2011 daily report informing de Nicolás that, as of June 2, 2011, 1 2 in another Homex project that was among the Company’s top ten 3 projects by revenue, only 18 homes had been sold since April 1, 4 despite a Company goal of 100 home sales in that project during the 5 quarter ending June 30, 2011; and 6 c) de Nicolás’s June 2011 “important and urgent” message to the project 7 manager in response to the June 2011 daily report, referencing 8 specific operational metrics, criticizing the manager’s performance, 9 and directing the manager to update him every day, including 10 Sundays, regarding the project’s sales status. Ultimately, the 11 Company would recognize revenue for 261 home sales in that project 12 during 2011; yet, as of April 27, 2012, more than 211 of those 261 13 homes remained unbuilt. 14 15 16 52. Throughout the relevant period, de Nicolás also regularly sent to, and received from, members of his “First Circle” emails attaching detailed spreadsheets 17 containing accurate information drawn from the Operations, Construction, and 18 Sales Modules of the SIA system for the purpose of comparing the Company’s 19 actual performance with the goals that had been set by management. These 20 communications detailed, among other things, the number of homes sold/still 21 unsold; the construction status of homes as to which construction was underway; 22 the number of homes for which construction had yet to begin; homes sold but not 23 yet delivered; and the number of lots with/without services and utilities. 24 Uniformly, these communications reflected drastic underperformance in 25 comparison to goals set by management for all the Company’s projects. 26 53. One such email, sent to de Nicolás on November 19, 2011, by a 27 member of his First Circle with the subject (as translated) “Report prepared for the 28 17 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.19 Page 19 of 35 1 end of the year,” stated that, as of that date – which was just six weeks away from 2 year end – only 23,894 homes had been built and sold Company-wide that year, 3 despite the Company’s goal of 50,055 homes being built and sold during 2011. 4 54. Despite receiving this email, de Nicolás subsequently approved 5 Homex’s annual report for 2011 on Form 20-F, which was filed with the SEC on 6 April 30, 2012, representing that Homex had built and sold 52,486 homes during 7 2011. This claim, which could be true only if the Company somehow managed to 8 build and sell approximately 28,592 homes in the final six weeks of 2011, appears 9 10 11 12 13 14 15 16 17 in four places in the Form 20-F; for example, in the “Management Discussion and Analysis” section claims that “[t]otal units closed of 52,486 in 2011 represents an 18.4% increase compared to total units closed in 2010 of 44,347…. [and is] primarily due to our strategy of focusing on home prototypes in the affordable entry-level which produce higher revenue and profit margins.” In addition, de Nicolás certified the financial statements included in that same Form 20-F, reflecting the associated revenues. 55. de Nicolás also closely tracked in real time Homex senior 18 management’s efforts to improve the Company’s chronic underperformance in 19 relation to goals that senior management had set. These efforts included the 20 implementation of “juegos,” which were games or contests that set certain 21 production goals and deadlines for project managers. During 2011, for example, 22 de Nicolás received the results of one such “juego,” in which management had set 23 a goal for project managers throughout Mexico to build and sell 10,000 homes 24 within approximately a month. Those results, contemporaneously conveyed to de 25 Nicolás, were that only 3,468 homes were built and sold during the juego, and that 26 every project manager had fallen short of his or her goal, many by a substantial 27 margin. 28 18 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.20 Page 20 of 35 1 56. Moctezuma also received detailed spreadsheets during the relevant 2 period containing data drawn from Operations, Construction, and Sales Modules of 3 Homex’s SIA system, illustrating the Company’s dismal performance in real time. 4 For instance, Moctezuma received an October 25, 2012 email with attachments 5 providing details on the operational and financial performance of several projects 6 in Baja California. The email included performance information about the 7 “Tijuana Pontevedra Ontiveros” project, which Moctezuma would later falsely 8 certify, during the SEC investigation leading to the filing of this action, to be 9 among the Company’s ten largest developments by revenue during fiscal years 10 2010 through 2012. The e-mail attachments reflect that, as of October 25, 2012, 11 across all the Baja California projects, only 620 houses had been built and sold in 12 2012, out of a goal of 3,915 for that year. The email also reflects that in the 13 Tijuana Pontevedra Ontiveros project specifically, only 11 units had been built and 14 sold in all of 2012 through the date of the email, despite a goal of 200 for that year. 15 57. The October 25, 2012 email also reflects Homex’s plans to build 200 16 17 units in Tijuana Pontrevedra Ontiveros in 2012. This was inconsistent with 18 documents including a sworn declaration that Moctezuma furnished the SEC 19 during the investigation leading to filing of this action. Those documents reflect 20 that the Tijuana Pontrevedra Ontiveros project was essentially complete by the end 21 of 2011, with all but two of the project’s planned units having already been built 22 and sold, before 2012 even began. 23 58. Similarly, on June 13, 2013 – only three weeks after Homex filed its 24 annual report for the 2012 fiscal year, and one month before Moctezuma furnished 25 the sworn declaration and accompanying documents to the SEC – Moctezuma 26 received the email from his subordinate referenced above. As noted in paragraph 27 38 above, that email attached a spreadsheet comparing “real” versus “accounting” 28 19 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.21 Page 21 of 35 1 unit home sales for Homex’s ten largest projects by revenue; these were the same 2 “top ten” projects listed in Moctezuma’s subsequent sworn declaration to the SEC 3 referenced above. Despite the vast discrepancies reflected in that spreadsheet and 4 detailed in paragraph 38 above between the actual and the “accounting” numbers 5 for those projects, Moctezuma made no effort to disclose the discrepancies (in his 6 subsequent declaration to the SEC or otherwise) or to correct the Company’s false 7 publicly-filed financial statements. 8 9 10 11 12 13 14 15 16 59. In addition, on March 7, 2013, more than two months prior to the filing of Homex’s 2012 annual report on Form 20-F, Moctezuma received Google Earth files comprising numerous years of satellite imagery of at least 60 of the Company’s projects. As of October 2017, and on information and belief, as of March 2013 as well, those Google Earth files distinctly show each project and clearly depict the construction progress, or lack thereof, for each real estate development, including individual housing units, roads, common areas, lots without homes, and undeveloped land. Numerous of the attached Google Earth 17 files, then (on information and belief) as now, included satellite images captured 18 during the Relevant Period clearly indicating that Homex had constructed far fewer 19 housing units than what the Company had publicly reported in its 2010 and 2011 20 Form 20-Fs, and what it would go on to report, over Moctezuma’s signature, in its 21 2012 Form 20-F. 22 60. For example, included in the attachment to the March 7, 2013 email to 23 Moctezuma is a Google Earth file for one of the Company’s top ten projects 24 located in Central Mexico (as declared by Moctezuma). As of October 2017, as 25 well as of (on information and belief) March 2013, the Google Earth file for this 26 project includes viewable prior satellite images dated December 21, 2012, January 27 31, 2013, and February 16, 2013, with each image clearly depicting the progress of 28 20 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.22 Page 22 of 35 1 the project. According to the sworn declaration and accompanying documents 2 Moctezuma provided to the SEC, this particular project had been completely 3 constructed and sold by December 31, 2011. However, the February 16, 2013 4 image, which, on information and belief, was viewable in the Google Earth file 5 emailed to Moctezuma on March 7, 2013, shows that only a small portion of the 6 project had been developed even by February 16, 2013, with the location of much 7 of the purportedly long-before built and sold housing appearing to be dirt or 8 undeveloped land. 9 61. Despite having this clear and timely bird’s-eye view of these 10 markedly underdeveloped real estate developments, Moctezuma, once again, made 11 no effort to disclose the discrepancies or to correct the Company’s publicly-filed 12 financial statements. Nor did Moctezuma endeavor to ensure the Company’s not13 yet-filed Form 20-F for 2012 reported accurate home sales and revenue figures. 14 Instead, Moctezuma went on to certify the fraudulent financial statements and sign 15 off on the materially overstated homes-built-and-sold figures in the Company’s 16 17 Form 20-F for 2012. 18 F. 19 62. Making False Annual and Quarterly Report Certifications Exchange Act Rule 13a-14, promulgated pursuant to Section 302 of 20 the Sarbanes-Oxley Act, requires CEOs and CFOs each to certify, “based on his or 21 her knowledge” that the issuer’s periodic filings contain no material misstatements 22 or omissions and that, among other things, these officers have designed or caused 23 to be designed internal controls providing reasonable assurances that financial 24 reporting is in accordance with GAAP. 25 63. Moctezuma and de Nicolás each signed and furnished such 26 certifications for each of Homex’s Forms 20-F filed for fiscal years 2010 through 27 2012, as well as for each of its quarterly reports on Form 6-K reporting quarterly 28 21 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.23 Page 23 of 35 1 financial results, from 2010 through the third fiscal quarter of 2013. They signed 2 these filings despite knowing or being reckless in not knowing that the Company’s 3 internal controls had been circumvented through the failures, detailed above, to 4 accurately report, among other things, Homex’s home sales and revenues. 5 G. Lying to Auditors 6 64. In connection with the annual audits of Homex’s financial statements 7 included in the Company’s Forms 20-F for each of fiscal years 2010 through 2012, 8 de Nicolás and Moctezuma signed and furnished to Homex’s auditor a 9 10 11 12 13 14 15 16 management letter making representations to the auditor concerning Homex’s financial statements and internal controls over financial reporting (hereinafter “Management Rep Letters”). 65. Each of these Management Rep Letters, as de Nicolás and Moctezuma each knew or were reckless in not knowing at the time each signed them, were false, in that they each asserted, among other things, that “there are no transactions of a material nature, individually or in the aggregate, that have not been properly 17 recorded in the accounting records underlying [Homex’s] consolidated financial 18 statements.” 19 20 H. Failing to Correct Homex’s False Financials Throughout the Entirety of Their Tenures and Re-using Those Financials in the Company’s Bankruptcy Reorganization 21 22 23 66. Under Exchange Act Rule 10b-5, persons who “make” a statement (as de Nicolás and Moctezuma did with respect to every Homex annual and quarterly 24 report they signed or certified) have an ongoing duty to correct “any omission to 25 state a material fact necessary in order to make the statements made, in the light of 26 the circumstances in which they were made, not misleading.” Exchange Act Rule 27 12b-20 confers the same duty on issuers like Homex. 28 22 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.24 Page 24 of 35 1 67. Despite the ongoing nature of this duty to correct, and despite being 2 aware contemporaneously of facts and information, detailed above, that were at 3 drastic variance from that contained in Homex’s annual and quarterly reports, 4 neither de Nicolás, nor Moctezuma, at any time through the very end of their 5 tenures as Homex’s CEO and CFO, respectively, in May 2016, caused Homex to 6 correct, restate, or even disclose any concerns as to the reliability of the Company’s 7 financial statements or related representations included in its SEC filings. 8 9 10 11 12 13 14 15 16 68. But de Nicolás and Moctezuma did not merely fail to correct the material misstatements in Homex’s 2010 – 2012 financials that each knew or were reckless in not knowing were materially misleading. As explained below, both compounded this error by affirmatively participating in the re-use of those very financials during Homex’s bankruptcy process. 69. As de Nicolás and Moctezuma knew or were reckless in not knowing, a key aspect of Homex’s restructuring strategy through its bankruptcy process in Mexico was the creation by Homex, of a detailed financial model based upon 17 historical Homex revenue, cost, and sales data. This model played a central role in 18 the Company’s Business Plan for post-bankruptcy operations. Homex made the 19 Business Plan publicly available during the bankruptcy process, and Homex’s 20 potential investors and creditors, including those that converted their debt to equity 21 following Homex’s emergence from bankruptcy in October 2015, relied upon that 22 Business Plan when making their investment decisions. 23 70. Despite the fact that de Nicolás and Moctezuma, as discussed above, 24 each knew or was reckless in not knowing the materially misleading nature of the 25 historical revenue, cost, and sales data contained in Homex’s financial statements 26 for its 2010 through 2012 fiscal years, neither disclosed this (or the existence of the 27 SEC investigation that led to the filing of this action) to the Homex advisors who 28 23 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.25 Page 25 of 35 1 were creating the Company’s financial model. Both were copied on e-mails 2 transmitting this same misleading historical financial information for integration 3 into financial models for use in the Company’s restructuring efforts and disclosures 4 to investors. 5 CLAIMS FOR RELIEF 6 FIRST CLAIM [Securities Fraud] 7 8 Violations of Securities Act Section 17(a) [Against All Defendants] 9 10 11 12 13 14 15 16 71. Paragraphs 1 through 70 are realleged and incorporated herein by reference. 72. As described above, Defendants de Nicolás, Moctezuma, Lafarga, and Corrales, acting knowingly, recklessly or negligently, in the offer or sale of Homex securities, by use of the means or instruments of transportation or communication in interstate commerce or of the mails, directly or indirectly: (a) employed devices, 17 schemes, or artifices to defraud; (b) obtained money or property by means of 18 untrue statements of material facts or omissions of material facts necessary in order 19 to make the statements made, in light of the circumstances under which they were 20 made, not misleading; or (c) engaged in transactions, practices, or courses of 21 business which operated or would have operated as a fraud or deceit upon the 22 purchasers of Homex securities. 23 73. By engaging in the foregoing conduct, Defendants de Nicolás, 24 Moctezuma, Lafarga, and Corrales violated Section 17(a) of the Securities Act [15 25 U.S.C. § 77q(a)]. 26 27 28 24 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.26 Page 26 of 35 SECOND CLAIM [Securities Fraud] 1 2 3 4 5 Violations of Exchange Act Section 10(b) and Rule 10b-5 Thereunder [Against All Defendants] 74. 6 reference. 7 75. Paragraphs 1 through 70 are realleged and incorporated herein by As described above, Defendants de Nicolás, Moctezuma, Lafarga, and 8 Corrales, acting knowingly or recklessly, directly or indirectly, in connection with 9 the purchase or sale of Homex securities, by use of the means or instrumentalities 10 of interstate commerce, or of the mails, or of any facility of a national exchange: 11 (a) employed devices, schemes, or artifices to defraud; (b) made untrue statements 12 of material facts or omitted to state material facts necessary to make the statements 13 made, in the light of the circumstances under which they were made, not 14 misleading; or (c) engaged in acts, practices, or courses of business which operated 15 or would have operated as a fraud or deceit upon any person. 16 76. By engaging in the foregoing conduct, Defendants de Nicolás, 17 18 Moctezuma, Lafarga, and Corrales violated Section 10(b) of the Exchange Act [15 19 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 20 21 THIRD CLAIM [Falsification of Books and Records and Circumvention of Internal Controls] 22 Violation of Exchange Act Section 13(b)(5) and Rule 13b2-1 [Against All Defendants] 23 24 25 77. 26 reference. 78. 27 Paragraphs 1 through 70 are realleged and incorporated herein by As described above, Defendants de Nicolás, Moctezuma, Lafarga, and 28 Corrales knowingly circumvented or knowingly failed to implement a system of 25 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.27 Page 27 of 35 1 internal accounting controls, knowingly falsified books, records, or accounts and 2 directly or indirectly falsified or caused to be falsified books, records, or accounts 3 described in Section 13(b)(2) of the Exchange Act. 4 79. By engaging in the foregoing conduct, Defendants de Nicolás, 5 Moctezuma, Lafarga, and Corrales violated Section 13(b)(5) of the Exchange Act 6 [15 U.S.C. § 78m(b)(5)] and Rule 13b2-1 thereunder [17 C.F.R. § 240.13b2-1]. 7 8 FOURTH CLAIM [Misleading an Accountant or Auditor] 9 10 Violations of Exchange Act Rule 13b2-2 [Against de Nicolás and Moctezuma] 11 12 13 14 15 16 80. Paragraphs 1 through 70 are realleged and incorporated herein by reference. 81. As described above, Defendants de Nicolás and Moctezuma, directly or indirectly, and in connection with audits or examinations of the financial 17 statements of Homex and the preparation and filing of statements and reports 18 required to be filed with the Commission, made or caused to be made materially 19 false or misleading statements to accountants and omitted to state, or caused 20 another person to omit to state to accountants, material facts necessary in order to 21 make statements made to the accountants, in light of the circumstances under 22 which such statements were made, not misleading. 23 24 82. By engaging in the foregoing conduct, Defendants de Nicolás and Moctezuma violated Exchange Act Rule 13b2-2 [17 C.F.R. § 240.13b2-2]. 25 26 27 28 26 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.28 Page 28 of 35 FIFTH CLAIM [Making False Annual and Quarterly Report Certifications] 1 2 3 Violations of Exchange Act Rule 13a-14 [Against de Nicolás and Moctezuma] 4 5 6 7 8 9 83. Paragraphs 1 through 70 are realleged and incorporated herein by reference. 84. As described above, Defendants de Nicolás and Moctezuma, falsely stated in certifications each submitted with Homex’s (i) annual reports on Form 10 20-F for its 2010 through 2012 fiscal years, and (ii) quarterly reports on Form 6-K 11 for all of its fiscal quarters from its first fiscal quarter of 2010 through its third 12 fiscal quarter of 2013, that, among other things, the financial statements and other 13 financial information included in said annual and quarterly reports fairly presented 14 in all material aspects the financial condition, results of operations and cash flows 15 of Homex. 16 17 85. By engaging in the foregoing conduct, Defendants de Nicolás and Moctezuma violated Exchange Act Rule 13a-14 [17 C.F.R. § 240.13a-14]. 18 SIXTH CLAIM [False and Misleading Annual and Quarterly Reports] 19 20 21 22 Aiding and Abetting Homex’s Violations of Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13 thereunder [Against All Defendants] 23 24 86. 25 reference. 26 87. Paragraphs 1 through 85 are realleged and incorporated herein by Homex, by virtue of the conduct alleged herein by Defendants, 27 violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-16 28 thereunder, by filing with the Commission materially false and misleading annual 27 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.29 Page 29 of 35 1 reports on Form 20-F for its 2010 through 2012 fiscal years, and materially false 2 and misleading quarterly reports on Form 6-K for all of its fiscal quarters from its 3 first fiscal quarter of 2010 through its third fiscal quarter of 2013. 4 88. By engaging in the foregoing conduct, Defendants de Nicolás, 5 Moctezuma, Lafarga, and Corrales knowingly provided substantial assistance to 6 Homex’s violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)] 7 and Rules 12b-20, 13a-1 and 13a-16 thereunder [17 C.F.R. §§ 240.12b-20, 8 240.13a-1, and 240.13a.16] and, pursuant to Exchange Act Section 20(e) [15 9 U.S.C. § 78t(e)], thereby aided and abetted those violations. 10 11 SEVENTH CLAIM [Falsification of Books and Records] 12 13 Aiding and Abetting Homex’s Violations of Exchange Act Sections 13(b)(2)(A) and (B) [Against All Defendants] 14 15 16 17 18 19 20 21 22 23 89. Paragraphs 1 through 85 are realleged and incorporated herein by reference. 90. Homex, by virtue of the conduct alleged herein by Defendants, violated Section 13(b)(2)(A) of the Exchange Act by failing to make or keep books, records and accounts that in reasonable detail accurately and fairly reflected its transactions and the disposition of its assets. 91. In addition, by virtue of the conduct alleged herein by Defendants, 24 Homex violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and 25 maintain a system of internal accounting controls sufficient to provide reasonable 26 assurances that Homex’s corporate transactions were executed in accordance with 27 management’s authorization and in a manner to permit the preparation of financial 28 statements in conformity with GAAP. 28 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.30 Page 30 of 35 1 92. By engaging in the foregoing conduct, Defendants de Nicolás, 2 Moctezuma, Lafarga, and Corrales knowingly provided substantial assistance to 3 Homex’s violations of Exchange Act Sections 13(b)(2)(A) and (B) [15 U.S.C. §§ 4 78m(b)(2)(A) and (B)] and, pursuant to Exchange Act Section 20(e) [15 U.S.C. § 5 78t(e)], thereby aided and abetted those violations. 6 7 EIGHTH CLAIM [Control Personal Liability] 8 9 10 11 12 Control Person Liability for Homex’s Violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-16 thereunder [Against de Nicolás] 13 93. 14 reference. 15 94. Paragraphs 1 through 85 are realleged and incorporated herein by Homex violated Section 17(a) of the Securities Act [15 U.S.C. § 16 77q(a)] and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange 17 Act [15 U.S.C. §§ 78j(b), 78m(a), and 78m(b)(2)(A) and (B)], and Exchange Act 18 Rules 10b-5, 12b-20, 13a-1, and 13a-16 [17 C.F.R. §§ 240.10b-5, 12b-20, 13a-1 19 and 13a-16] thereunder. 20 95. During the relevant period, Defendant de Nicolás was the CEO of 21 Homex and possessed the power to direct or cause the direction of the management 22 and policies of Homex. Defendant de Nicolás controlled the day-to-day affairs of 23 24 25 26 27 Homex and possessed and exercised, directly or indirectly, the power to direct or cause the direction of the management and policies of Homex. 96. Defendant de Nicolás is a “control person” of Homex pursuant to Section 20(a) of the Exchange Act. [15 U.S.C. §78t(a)]. 28 29 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.31 Page 31 of 35 1 97. As Homex’s control person, Defendant de Nicolás is liable for 2 Homex’s violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 3 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 10b-5, 4 12b-20, 13a-1, and 13a-16. 5 6 7 PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that this Court enter a 8 judgment that: 9 (i) permanently enjoins Defendants de Nicolás, Moctezuma, Lafarga, and 10 Corrales from violating Securities Act Section 17(a) [15 U.S.C. § 77q(a)], 11 Exchange Act Sections 10(b) and 13(b)(5) [15 U.S.C. §§ 78j(b) and 78m(b)(5)] 12 and Exchange Act Rules 10b-5 and 13b2-1 [17 C.F.R. §§ 240.10b-5 and 13 240.13b2-1]; 14 (ii) permanently enjoins Defendants de Nicolás and Moctezuma from 15 violating Exchange Act Rules 13b2-2 and 13a-14 [17 C.F.R. §§ 240.13b2-2 and 16 17 240.131-14)]; 18 (iii) permanently enjoins Defendants de Nicolás, Moctezuma, Lafarga, and 19 Corrales from aiding and abetting violations of Exchange Act Sections 13(a), 20 13(b)(2)(A) and 13(b)(2)(B) [15 U.S.C. §§ 78m(a), 78(m)(b)(2)(A) and 21 78m(b)(2)(B)] and Exchange Act Rules 12b-20, 13a-1, and 13a-16 [17 C.F.R. §§ 22 240.12b-20, 240.13a-1, and 240.13a-16]; 23 (iv) permanently enjoin Defendant de Nicolás from acting as a 24 “controlling person” within the meaning of Section 20(a) of the Exchange Act in 25 connection with violations of Section 17(a) of the Securities Act [15 U.S.C. § 26 77q(a)] and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange 27 Act [15 U.S.C. §§ 78j(b), 78m(a), and 78m(b)(2)(A) and (B)], and Exchange Act 28 30 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.32 Page 32 of 35 1 Rules 10b-5, 12b-20, 13a-1, and 13a-16 [17 C.F.R. §§ 240.10b-5, 12b-20, 13a-1 2 and 13a-16]; 3 (v) bars Defendants de Nicolás, Moctezuma, Lafarga, and Corrales from 4 acting as an officer or director of any public company pursuant to Exchange Act 5 Section 21(d)(2) [15 U.S.C. § 78u(d)(2)]; 6 (vi) orders Defendants de Nicolás, Moctezuma, Lafarga, and Corrales to 7 pay civil penalties pursuant to Securities Act Section 20(d) [15 U.S.C. § 77t(d)] 8 and Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)] for all violative 9 10 11 12 13 14 15 conduct occurring within five years of the filing of this Complaint; (vii) orders Defendants de Nicolás, Moctezuma, Lafarga, and Corrales to disgorge, with prejudgment interest, any and all ill-gotten gains each received as a result of the conduct described herein within five years of the filing of this Complaint; and (viii) grants such other relief as the Court deems just or appropriate. 16 JURY TRIAL DEMANDED 17 18 19 20 Pursuant to Rule 38 of the Federal Rules of Civil Procedure, the Commission demands a trial by jury in this action of all issues so triable. 21 22 Dated: October 11, 2017 23 24 Respectfully submitted, 25 26 27 28 /s/ Richard Hong______________________ RICHARD HONG Attorney for Plaintiff 31 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.33 Page 33 of 35 1 Securities and Exchange Commission 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 32 Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.34 Page 34 of 35 EXHIBIT 1 Document Date Filed Authorization Signatory SOX 302 Certification Signatory 2010 Annual Report on Form 20-F/A Q1 2010 Earnings Release Furnished on Form 6-K Q2 2010 Earnings Release Furnished on Form 6-K Q3 2010 Earnings Release Furnished on Form 6-K Q4 2010 Earnings Release Furnished on Form 6-K Q1 2011 Earnings Release Furnished on Form 6-K Q2 2011 Earnings Release Furnished on Form 6-K Q3 2011 Earnings Release Furnished on Form 6-K 2012 $400 Million Bond Offering Circular Q4 2011 Earnings Release Furnished on Form 6-K 2011 Annual Report on Form 20-F Q1 2012 Earnings Release Furnished on Form 6-K Q2 2012 Earnings Release Furnished on Form 6-K Q3 2012 Earnings Release Furnished on Form 6-K Q4 2012 Earnings Release Furnished on Form 6-K Q1 2013 Earnings Release Furnished on Form 6-K 2012 Annual Report on Form 20-F Q2 2013 Earnings Release Furnished on Form 6-K Q3 2013 Earnings Release Furnished on Form 6-K 10/11/2011 4/27/2010 7/27/2010 10/26/2010 3/1/2011 5/3/2011 7/27/2011 10/25/2011 2/7/2012 2/28/2012 4/30/2012 5/3/2012 7/25/2012 10/24/2012 2/27/2013 4/26/2013 5/22/2013 7/26/2013 11/12/2013 de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma de Nicolás, Moctezuma Moctezuma Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga n/a Moctezuma, Lafarga Moctezuma Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma, Lafarga Moctezuma Moctezuma, Lafarga Moctezuma, Lafarga de Nicolás, Moctezuma n/a n/a n/a n/a n/a n/a n/a n/a n/a de Nicolás, Moctezuma n/a n/a n/a n/a n/a de Nicolás, Moctezuma n/a n/a Case 3:17-cv-02086-JAH-AGS Document 1 Filed 10/11/17 PageID.35 Page 35 of 35 EXHIBIT 2 Fig. 1: Benevento Project Plan Fig. 2: March 12, 2012, Benevento satellite image Fig. 3: Colored highlighting reflects Benevento housing units which Homex claimed to have built and sold, and for which it had recorded sales and reported revenue in 2009 (pink), 2010 (green), and 2011 (blue).