StarMedia: Financial reports are unreliable

Spanish and Portuguese-language Internet portal StarMedia Network Inc. has announced that its un-audited financial statements for the quarters ended March 31 and June 30 and its audited financial statements for the fiscal year ended Dec. 31, 2000 could not be relied upon due to accounting issues related to two of its Mexican subsidiaries, and that it would restate the results after an investigation into the matter was completed.

The company added that a preliminary conclusion in the investigation led it to believe that its Mexican subsidiaries AdNet SA de CV and StarMedia Mexico SA de CV “improperly recognized” US$10 million in aggregate revenue from Oct. 1, 2000 to June 30, 2001.

The investigation is being conducted by a special committee to the company’s board of directors as well as an outside counsel retained by the committee. StarMedia said that it would file the restated quarterly results, as well as results for the quarter ended Sept. 30, 2001, once the investigation was completed.

The company also announced that earlier this month it fired its general counsel, Justin Macedonia, who had filed a motion of intention to arbitrate against the company for tax indemnity payments of over $1.7 million. Additionally, StarMedia said that its chief financial officer Steven J. Heller resigned, effective Nov. 15.

News of unreliable financial results and a staff shakeup comes after the Latin American Internet titan surprised investors last August, announcing that its high profile co-founder and CEO Fernando Espuelas would be stepping down as CEO.

No one at StarMedia was immediately available for comment Monday morning.

The Nasdaq Stock Market halted trading on the company’s stock (STRM) for “additional information requested” following release of the news. At that time, the stock was up 8.57 per cent to $0.38.

StarMedia, in New York City, can be reached at