Cablevision Systems has agreed to settle Securities and Exchange Commission litigation concerning improper financial reporting by employees in its Rainbow Media Holdings unit, the company disclosed in a filing Friday.
The SEC issued an order Thursday directing Cablevision to cease and desist from further violations of the reporting provisions, which led the company to misstate financial results for periods from 1999 to 2003.
In 2004, Cablevision completed the restatement of its financial statements for those periods after discovering the accounting irregularities and conducting an independent investigation. After the investigation Cablevision fired 14 Rainbow Media executives.
Cablevision, in its filing Friday with the SEC, said it reported the accounting issues to the SEC and subsequently implemented a number of remedial actions. The company said it fully cooperated with the SEC investigation.
"It is now behind us," Cablevision spokesman Charles Schueler told the Associated Press.
The SEC said that from at least 1999 through mid-2003, Cablevision improperly recognized certain costs as current expenses. These "prepays," as the practice was referred to, occurred because certain Cablevision employees falsified invoices and other documents in order to accrue expenses earlier than when they in fact should have been accrued, the agency said.
Separately, from at least 2000 through late 2003, Cablevision employees also improperly recognized launch and marketing support payments from TV program vendors, according to the SEC. That practice caused Cablevision to reduce expenses in the periods in which launch support was improperly recognized and correspondingly increase expenses in the periods when the launch support should have been recognized, the SEC complaint said.
For example, the SEC said, Rainbow executives treated a seven-year programming agreement signed in 2002 (with an unidentified party) as if it were two agreements -- one of three years, and another of seven years. Thus, as two separate agreements, Cablevision recognized $48 million in launch support over the "three-year" agreement and $16 million over the "seven-year" agreement.
Under the SEC's accounting rules, however, the two agreements should have been treated as one, with the result that the total $64 million in launch support should have been prorated over seven years. "Cablevision employees improperly cast the single deal as two agreements to achieve early recognition of the launch support payments," the SEC alleged.
Also Thursday, the SEC announced it has settled civil action against three former Rainbow employees -- Kate McEnroe, former president of AMC Networks; Noreen O'Loughlin, former executive vice president and general manager of marketing for AMC; and Martin von Ruden, former senior vice president and general manager of WE -- in U.S. District Court for the Eastern District of New York.
The commission's complaint alleged that the three Rainbow managers "directed or were aware of improper prepays and signed inaccurate payment authorization forms that caused improper prepays."
Without admitting or denying the allegations in the agency's complaint, McEnroe, O'Loughlin and von Ruden consented to final judgments ordering them to pay civil penalties of $30,000, $15,000, and $15,000, respectively, according to the SEC.
