Accounting & Tax

SEC Settles with Charter Communications

According to the commission, the company had been ''managing disconnects'' and improperly inflating its subscriber numbers.
Stephen TaubAugust 3, 2004

The Securities and Exchange Commission settled an investigation of Charter Communications Inc., the nation’s third-largest cable company, which the SEC had accused of inflating its subscriber numbers “to meet analysts’ expectations for subscriber growth and depict itself as a growing company.”

In settling with the SEC, Charter agreed to the entry of an administrative order prohibiting any future violations of securities laws. The company neither admitted nor denied wrongdoing, and it was not fined.

“We are very pleased to put this issue from the past behind us,” said the company’s president and chief executive officer, Carl Vogel, in a statement. He added that Charter cooperated fully with the SEC during the commission’s 20-month investigation and was committed to implementing the institutional changes requested by the agency.

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According to the SEC’s administrative order, in 2001 Charter had begun “managing disconnects” — that is, not discontinuing service to customers who had requested that their accounts be terminated or who would ordinarily have been disconnected because their accounts were delinquent.

As a result of these actions, asserted the commission, Charter reported materially inflated subscriber numbers in each of the four quarterly reports for 2001. These inflated numbers enabled the company “to falsely depict itself to the public and analysts as a growing company when Charter actually experienced flat to negative growth for those periods,” added the SEC.

In the fourth quarter of 2000, the SEC also asserted, Charter improperly inflated its year-end revenue and operating cash flow by $17 million when it realized that these figures would otherwise come in below analysts’ expectations. According to the commission, Charter entered into one contract under which it agreed to pay two suppliers an additional $20 for each digital converter that the company purchased. Simultaneously, the SEC maintained, the company entered into a second contract under which those suppliers agreed to purchase $20 in advertising services from Charter for each converter purchased.

In effect, the SEC charged, Charter gave these suppliers money to purchase its advertising services. “By increasing its revenue and operating cash flow with the $20 it was paid by the suppliers as advertising revenue, Charter improperly inflated its 2000 year-end revenue and operating cash flow” in its annual report, the commission added.

In July 2003, a federal grand jury charged four former officers of Charter Communications with conspiracy and fraud, alleging improper accounting and reporting of revenue from suppliers of digital converters, as well as inflated subscriber account numbers, according to the Associated Press.