Federal authorities Thursday charged four former top executives of Charter Communications Inc., the nation’s third- largest cable television company, with conspiring to defraud investors by making it look as if the company had more money and cable subscribers than it did.
A federal grand jury in St. Louis indicted former Chief Operating Officer David Barford, 44, of Chesterfield, Mo., and former Chief Financial Officer Kent Kalkwarf, 45, of St. Louis, on 14 counts of mail fraud, wire fraud and conspiracy to commit wire fraud during 2000 and 2001.
Charter’s former senior vice president, James Smith, 55, of Southern California, was indicted on eight counts of wire fraud and conspiracy. Former Senior Vice President David McCall, 48, of Laurens, S.C., was indicted on one count of conspiracy to commit wire fraud. Charges against McCall and Smith are related to an alleged 2001 scheme to inflate Charter’s subscriber numbers.
If convicted, each defendant could face up to five years in prison and fines of as much as $250,000 on each count. Barford and Kalkwarf were fired by Charter in 2002. Smith left the company in 2001, and McCall resigned this year, Charter said.
Robert Haar, a St. Louis attorney representing Kalkwarf, said the defendants “are being made scapegoats.”
The St. Louis-based company, controlled by Microsoft Corp. co-founder Paul Allen, has 6.7 million subscribers nationwide and about 500,000 in Southern California.It is the third-largest cable operator in the Los Angeles region.
The charges stem from an investigation launched last year of the company’s accounting practices. The federal probe has focused on how the company counted its customers and accounted for payments from programmers and suppliers. Charter also faces a similar investigation by the Securities and Exchange Commission.
Neither the firm nor any of its directors was charged. Federal prosecutors said that Charter was not a target of the investigation and praised its cooperation.
Charter said in a statement that “the indictment of four former employees should not impact the company’s ability to execute its operating plan going forward.” Charter acknowledged this year that it had overstated its sales and cash-flow figures back to 2000 and said it lost $1.87 billion in the fourth quarter after conforming to new accounting rules.
Analysts welcomed Thursday’s indictments because they suggest that the federal investigation is in its final stages.
“We view this announcement as a positive for Charter, given that it potentially removes a yearlong overhang on its securities,” said Aryeh Bourkoff, a cable industry analyst at UBS.
Charter’s stock has plummeted since the investigation began last year. The firm has installed new management and slowed losses of basic-cable subscribers, and is seeking to slash $19 billion in debt. Its shares fell 20 cents on Thursday to $4.78 on Nasdaq. The indictments were announced after the close of trading.