Four former Charter Communications Inc. executives were indicted on 14 counts
of wire fraud, mail fraud and conspiracy to commit wire fraud by the U.S.
Attorney for the Eastern District of Missouri, for allegedly taking part in a
scheme to defraud Charter investors and inflate cash-flow figures.
Former chief operating officer David Barford and former chief financial
officer Kent Kalkwarf were indicted on 14 counts of wire fraud, mail fraud and
conspiracy to commit wire fraud.
Former Eastern region senior vice president David McCall was indicted on one count of conspiracy to commit wire fraud, and former Western region senior VP James (Trey) Smith was indicted on eight counts of wire fraud and conspiracy in an alleged scheme to inflate Charter’s subscriber numbers.
Barford and Kalkwarf were both fired from Charter in December, "following a
review by the company of various matters, including those relating to the
previously disclosed grand-jury investigation," Charter said in a statement at
the time.
Smith left the company in 2001 and McCall resigned earlier this year.
If found guilty, the four men face a maximum penalty of five years in prison
and/or fines of up to $250,000 for each count, according to a statement by the
U.S. Attorney’s office.
According to the indictment, in August 2000, Barford and Kalkwarf, realizing
that Charter might fall short of its projected year-end revenue and cash-flow
numbers, devised a scheme to artificially inflate those figures by giving money
to the MSO’s digital set-top-box suppliers in order for those suppliers to then
buy advertising from Charter.
"Charter asked the suppliers to charge them $20 more per set-top box," the
indictment stated. "Charter then used that same money to buy advertising. In
these transactions, Charter paid $20 more than necessary for each set-top box,
but then received its $20 back as advertising revenue."
According to the indictment, the scheme enabled Charter to inflate its
revenue and cash-flow figures by about $17 million in 2000.
The indictment also alleged that the four executives schemed in 2001 to
inflate subscriber numbers by a practice called "managing disconnects."
That practice, the indictment claimed, involved continuing to include
disconnected customers on the MSO’s books, delaying disconnects for subscribers
who had either requested to discontinue service or who had not paid for service,
as well as creating completely fictitious subscribers.
The indictments were the result of an investigation begun in August 2002 by
the FBI, the U.S. Postal Inspection Service and the U.S. Attorney’s office. In a
statement, the U.S. Attorney said Charter itself has not been indicted, and the
operator was commended for its cooperation during the investigation.
"This prosecution is another step in the federal government's efforts to
rebuild confidence in our market system by holding corporate executives
responsible for their actions," U.S. Attorney Ray Gruender said in a prepared
statement. "We will use all of the resources available to us to investigate and
prosecute those corporate executives who are willing to bend the rules and cook
the books."
In a prepared statement, Charter said the indictments of the four former
officers should have no effect on the company.
"Charter will continue to cooperate closely with the United States Attorney's
office in the inquiry," the MSO said in the statement. "This cooperation remains
a priority for Charter as it continues to attempt to put the investigation
behind it and look to the future."
