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The $10m sanction represents the biggest payment ever made by an accounting firm in an SEC investigation.
The regulator also sanctioned the actions of two former KPMG partners, a current partner and a senior manager for engaging in "improper conduct".
"Our action today holds KPMG as a firm accountable for the audit failures of its partners," said Stephen Cutler, the SEC's director of enforcement, in a statement.
"The sanctions in this case should reinforce the message that accounting firms must assume responsibility for ensuring that individual auditors properly discharge their special and critical gatekeeping duties," the SEC enforcement chief said.
The SEC action relates to KPMG audits of Gemstar from September 1999 to March 2002. Under KPMG's settlement with the regulator it has agreed to pay the $10m to harmed Gemstar investors.
The accounting firm said, in a statement, that it neither admitted or denied the SEC's allegations as a condition of the settlement.
"KPMG resolved this matter with the Securities and Exchange Commission on an amicable basis and to avoid any further distractions in achieving our goal to restore public confidence in the capital markets," the accounting firm said.
The accountants involved - former KPMG partners Bryan Palbaum and John Wong, current partner Kenneth Janeski and manager David Hori - have all been suspended from practicing before the SEC for varying periods of time.
Gemstar was accused of overstating its revenues by over $200m, and in some cases - according to the regulator - of recognising revenue from groups it had no contracts with.
The SEC found that the KPMG auditors should have realised what Gemstar was doing.
Gemstar has already settled with the SEC and agreed to pay a $10m penalty.
The regulator has a pending lawsuit against four former Gemstar executives, including its former chief executive officer Henry Yuen, which is due to begin in January next year.
KPMG said its settlement represented neither a fine nor a penalty, and said the SEC had previously noted that Gemstar executives had deceived its auditors.
However, the SEC said it found that "the (KPMG) respondents reasonably should have known that Gemstar improperly recognised and reported in its public filings material amounts of licensing and advertising revenue".
