Government agencies have reportedly begun to get involved with the reported accounting scandal at Cablevision Systems Corp.'s AMC programming unit.
First up, apparently, is the U.S. Department of Justice, which has initiated an investigation, a published report indicated.
A DOJ probe was expected after Cablevision announced June 18 that its own internal investigation had discovered accounting irregularities at the Rainbow Media Holdings-owned programmer — basically, accruing marketing expenses at the wrong times.
Cablevision also said that it found some employees at the unit had fabricated invoices. Those revelations led to the firing of 14 employees at AMC, including unit president Kate McEnroe and the general managers of the AMC and WE: Women's Entertainment channels.
Newsday
reported that the U.S. Attorney in Brooklyn and the Federal Bureau of Investigation were conducting the probe. A spokesman for the U.S. Attorney's office in Brooklyn declined to comment.
An FBI spokesman did not return a call for comment by press time.
Cablevision stock continued to decline on the news, down 18 cents, to $20.60, on June 26.
Since June 18, Cablevision's stock price fell by 8.6 %, or $1.94.
Several experts said last week it was likely the investigation spreads to other divisions within Cablevision and could drag on for some time.
"It depends on the scope of the problem," said Robert Krakow, a former New York County assistant district attorney now in private practice. "If they find clear problems or wrongdoing or the suggestion of it, that's likely going to broaden the scope of an investigation."
Krakow said the amounts of money involved — Cablevision said improper accruals amounted to about $18 million over three years — wouldn't affect the intensity of the investigation.
"If you get the attention of the regulators and the [Securities and Exchange Commission], and there are phony invoices going on, even though it's a relatively small amount of money, most investigators are going to think if that's going on, it must be deeper than that," he said.
"On the other hand if the company found it internally and there was no investigation, their objective is to say: 'We've got a problem, let's just come out with it and hopefully that will nip it in the bud.' "
Citigroup Smith Barney cable analyst Niraj Gupta said it was expected that other government agencies would get in on the investigation because Cablevision said it had already forwarded data to the appropriate government agencies.
He added that so far, Cablevision has been out in front in identifying the accounting glitch and taking decisive action.
Gupta also expected the probe to include other company divisions. "That's Cablevision's approach as well — they completed an internal audit of all their divisions, they hired a forensic expert and now they have gone a step further in terms of their latest legal hire. I think they're taking it very seriously."
Gupta was referring to reports that Cablevision is in negotiations to hire as general counsel Jonathan Schwartz, a former Department of Justice official who was associate general counsel for AOL Time Warner Inc.
The Wall Street Journal
said Schwartz is expected to come to Cablevision in the next few weeks.
As for the 14 former AMC employees, sources said at least some of them were talking to lawyers about possible legal action against Cablevision.
Linda Moss contributed to this story.
