Homex Faces Securities Suit in the Wake of SEC’s Fraud Charges

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Desarrolladora Homex, S.A.B. de C.V. (Homex Development Corp.) and three former executives are facing a proposed class action that claims the defendants deceived the investing public by overstating the company's revenue by billions of dollars over a period of three years. According to the complaint, the company falsely reported financial growth and success by claiming it sold over 100,000 more homes than it actually sold between 2010 and 2013, inflating its revenue by $3.3 billion. In 2014, the suit says, Homex filed for bankruptcy in Mexico, and in May 2016, the U.S. Securities Exchange Commission (SEC) reportedly announced it had launched an investigation into the company’s business practices.

In early 2017, the complaint notes, the SEC filed a complaint against Homex, charging it with accounting fraud. The press release announcing the complaint reportedly revealed evidence of the defendants’ “fictitious home sales,” including satellite images depicting undeveloped properties that supposedly contained homes the company had already sold (see picture below).

The plaintiff in this case, a Homex stockholder, alleges that the defendants artificially inflated stock prices between 2010 and 2013 by falsely reporting “significant sales and earnings increases” and then caused its investors to suffer great losses when it filed for bankruptcy and was charged with fraud.