A fraudulent history
The case stems from a financial scandal at Charter Communications. At the time, the St. Louis-based firm was the nation's fourth-largest cable television company.
In August 2000, executives at the company realized they were more than $15 million short of projected cash flow for the year. They worried that if stock analysts discovered the company's weak performance, their share price might suffer. They needed an infusion of cash – fast.
Instead of earning it, company officials devised a plan to artificially boost Charter's bottom line. They set up a system in which they overpaid two of their suppliers for television cable boxes. They paid $20 per box above the usual price – generating $17 million in overpayments. The suppliers – Scientific-Atlanta and Motorola – then agreed to pay $17 million to Charter to purchase advertising from Charter.
In effect, Charter was giving the suppliers free advertising but booking the recycled $17 million as new revenue.
To help throw Charter's auditors off the trail, Scientific-Atlanta and Motorola backdated phony contracts and were asked to send letters to Charter justifying the $20 extra charge per box, according to a federal indictment. One supplier sent false invoices, the indictment says.
The moves inflated Charter's bottom line and prevented a stock plunge, but only temporarily. When Charter's true financial situation was revealed (amid other questionable activities), the company's stock fell from $26 per share in 2000 to 76 cents per share by 2002.
A shareholder suit against Charter's top executives was settled out of court. Shareholders then turned their attention to the alleged roles played by Scientific-Atlanta and Motorola.