Risk Management

Adelphia Supplier’s CFO Is Sued

A lawsuit accuses Motorola and Scientific-Atlanta of helping to inflate Adelphia revenues.
Stephen TaubNovember 15, 2004

A group of Adelphia investors who lost close to $50 million after the cable company filed for bankruptcy is suing two of the company’s suppliers, as well as a pair of finance executives at one of them.

The suit, filed on Oct. 25 against the set-top, cable-box manufacturers Scientific-Atlanta and Motorola, alleged that the suppliers engaged in a “conspiracy” to inflate Adelphia’s earnings artificially, according to the Fulton County Daily Report.

The complaint named two finance executives from Scientific-Atlanta: Wallace Haislip, senior vice president of finance and operations, and Julian Eidson, CFO and treasurer.

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“Our clients have suffered significant losses as a result of conduct documented in sworn testimony in the Adelphia trial, and we look forward to helping them recover their losses,” said Rickman Brown of Dietrick, Evans, Scholz & Williams, an attorney representing the plaintiffs, the paper reported.

The suit charges that Scientific-Atlanta and Motorola overcharged Adelphia for set-top boxes and “washed” the overcharges by paying Adelphia for fictional “marketing support” services. Adelphia then used the revenues to boost earnings by about $91 million during 2000 and 2001 by immediately realizing the “marketing support” payments as earnings while amortizing the inflated cost of the set-top boxes over several years, asserted the Daily Report.

Citing corporate policy, Scientific-Atlanta spokeswoman Sara Stutzenstein said she would not comment on the allegations, according to the newspaper.

The publication also noted that a Motorola issued a statement via a spokeswoman confirming that the company had reviewed the accounting for its sales of set-top boxes to Adelphia. The company reportedly stated that it “is confident that these transactions have been recorded on Motorola’s books in accordance with Generally Accepted Accounting Principles (GAAP).”

Motorola’s statement confirmed that the transactions were completed at the request of Adelphia over a two-year period and that the portion designated as marketing support totaled about $46 million, according to the report. “We intend to vigorously defend the claims against the company,” the official added.

A different group of Adelphia investors brought a similar suit against the same defendants last July, according to the newspaper’s account. That complaint is also is seeking class action status.

Further, Scientific-Atlanta was named as a defendant in a suit originating in New York City that was filed before the criminal trial of the Adelphia executives. That suit involves complaints related to the purchase of set-top boxes and the marketing support agreement.