Accounting & Tax

Motorola Settles Suit for $190 Million

Allegedly inflated sales and income regarding its relationship with mobile-phone operator Telsim but failed to disclose that it had loaned the Turk...
Stephen Taub and Dave CookApril 18, 2007


Correction: This story has been corrected to reflect the fact that Charter Communications itself is not a defendant in the lawsuit against Motorola now pending before the Supreme Court.

Motorola has agreed to pay $190 million to settle a securities class-action lawsuit regarding a business arrangement with Turkish mobile-phone operator Telsim.

In a brief announcement, the world’s second-largest maker of handsets stated that the payment will be taken as a charge in the company’s recently completed first quarter, partially offset by estimated insurance recoveries of $75 million. Motorola provided no additional details.

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New Jersey’s state pension fund, which led the class action, had asserted that Motorola misled shareholders about the nature of its business dealings with Telsim, according to an announcement by state attorney general Stuart Rabner. Motorola allegedly inflated sales and income regarding its relationship with the Turkish company but failed to disclose that it had loaned Telsim billions of dollars to enable the purchases.

Bloomberg, which pegged the figure at $2 billion, noted that Telsim defaulted on the loans in 2001.

“Securities fraud denies investors the opportunity to make informed decisions,” said Rabner, in a statement. “In this instance, Motorola withheld information from the investing public which resulted in the New Jersey pension fund and others losing money. This settlement rights that wrong and serves notice on corporations to act openly and honestly.”

The settlement is expected to gain court approved by August, according to the New Jersey Law Journal. Bloomberg also reported that two similar lawsuits are still outstanding.

According to the wire service, last year a U.S. court awarded Motorola $1 billion in punitive damages against the Uzan family, which controlled Telsim until 2004. In addition, Motorola has received a total of $910 million pursuant to agreements with the Turkish government and Vodafone Group, which bought Telsim last year.

Motorola has its share of other headaches, too. It is defendant, along with Scientific-Atlanta, in a controversial lawsuit, to be heard in the 2007-2008 Supreme Court session, that accuses the companies of being secondary actors in a “scheme to defraud.” That’s a reference to accusations that Motorola, Scientific Atlanta, and other suppliers of cable company Charter Communications engaged in transactions that helped Charter inflate its revenue.

Moreover, Motorola CFO David Devonshire recently retired amid pressure from Carl Icahn, who seems determined to lead a proxy fight at Motorola’s May 7 annual meeting.