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Charter, SEC Settle Subscriber-Count Inquiry

Jul 28, 2004  •  Post A Comment

A dark cloud looming over Paul Allen’s Charter Communications lifted late Tuesday after the cable operator and the Securities and Exchange Commission reached a settlement in the agency’s probe of how Charter counted subscribers.

As part of the settlement, Charter agreed to settle an SEC administrative proceeding without admitting or denying guilt or having to pay a fine. The company also agreed to comply with an order to implement a series of measures designed to promote accurate and complete financial reporting.

The agreement ends more than 20 months of uncertainty for St. Louis-based Charter, which has been trying to get itself out from under a mountain of debt with the possibility of SEC action looming over it. At issue were allegations that Charter, the No. 3 cable operator in the United States with 6.5 million subscribers, had inflated sub numbers in 2001 by delaying disconnects in order to count them in quarterly reports.

Shares in Charter were down 2.5 percent Wednesday afternoon to $3.15; the broader market was also down.

A U.S. Department of Justice probe is ongoing, but neither the company nor its present management is the focus of the investigation.

Last July, four former Charter executives were indicted by a federal grand jury as part of the investigations into alleged wrongdoing by the company.

“We are very pleased to put this issue from the past behind us,” CEO Carl Vogel said in a statement. “We are a new company, and bringing this issue to closure allows us to focus on serving our customers.”

Even before the settlement, Charter had taken steps to correct the problems. New management led by Mr. Vogel was installed, and the company instituted a series of compliance programs designed to ensure employees follow federal law and accounting principles. In addition, Charter dumped its old auditor, the now-defunct accounting firm Arthur Andersen, and hired KPMG to re-audit the company’s financials.

Though it wasn’t reflected in its stock price, the news was seen as a positive for Charter, which continues to try to improve its liquidity position. Richard Greenfield, a managing director at Fulcrum Global Partners, noted that with the SEC investigation behind it, Charter can focus on operations-a point made Tuesday when Mr. Vogel vowed to improve the company’s debt load within 24 months.

How customers are counted has been a big issue for the SEC, which has inquired about the subscriber-counting practices of several telecommunications and pay-TV services, including Comcast, Cox Communications and DirecTV Group.