Former Charter executive pleads guilty on fraud conspiracy char

Saturday, July 26, 2003

ST. LOUIS -- One of four former Charter Communications executives accused of conspiring to defraud investors pleaded guilty Friday and is cooperating in the case against the other three men, authorities said.

Former senior vice president David McCall, 48, was among those charged Thursday in what prosecutors called schemes to boost revenue, cash flow and subscriber numbers to meet the nation's third-biggest cable television company's financial projections.

McCall, of Laurens, S.C., pleaded guilty Friday to one count of conspiracy to commit wire fraud before U.S. District Judge Carol Jackson. Sentencing was set for Oct. 17. He was freed on $10,000 bond.

McCall's plea was part of an agreement with prosecutors that calls for his cooperation in the case against the other executives, U.S. Attorney Ray Gruender said.

"We're certainly very pleased to have his cooperation and pleased by his admission in the conspiracy," Gruender said.

Charter, based in suburban St. Louis, is controlled by Microsoft Corp. co-founder Paul Allen and has about 6.8 million subscribers.

Former chief operating officer David Barford, 44, of Chesterfield, and former chief financial officer Kent Kalkwarf, 45, of St. Louis, had initial court appearances Friday before U.S. Magistrate Judge Terry Adelman.

Facing 14 counts

Both face 14 counts of mail fraud, wire fraud and conspiracy to commit wire fraud. They are expected to enter pleas at arraignments Tuesday. They were released on $100,000 bond each.

The fourth defendant, former senior vice president James Smith, 55, of California, was expected to make an initial court appearance Monday. He was indicted on eight counts of wire fraud and conspiracy. A phone listing for Smith was not available.

Gruender said the executives schemed in 2000 and 2001 to inflate revenue and operating cash flow and indicate the company had more cable subscribers than it really did.

In August 2000, Kalkwarf and Barford allegedly gave money to Charter's suppliers of digital set-top boxes, asking them to charge the company $20 more per set-top box, then having them return the money. As a result, Charter falsely included more than $17 million as revenue and cash flow for 2000, Gruender said.

The scheme in 2001 came about as Charter was finding it difficult to meet its projected subscriber goals because of the weak economy and increased competition from satellite dish companies, Gruender said.

The four executives instructed employees to delay disconnecting service both to customers seeking to end their service and those failing to pay their bills until after the end of the financial quarter, Gruender said.

"I was instructed to meet certain quarterly expectations," McCall said during questioning Friday by Jackson. "I did that and instructed people that worked for me to do that."

Asked about the involvement of others in the scheme, McCall told the judge, "It really involved a lot of people across the company."

Lawyers for Barford and Kalkwarf said their clients were innocent.

"I think, unfortunately, what this indictment does is elevate issues of accounting judgment to crimes," said Robert Haar, who represents Kalkwarf.

Gruender would not say if the investigation continued or if additional charges would be filed. Charter chief executive Carl Vogel said neither the company nor its current directors are under investigation.

In a statement, Charter said it has reviewed its business practices, hired new management, instituted new financial procedures and developed ways to ensure its employees comply with laws and regulations.

Charter, founded in 1993, grew rapidly, largely through acquisitions as part of Allen's "wired world" vision. It was among the first companies to offer cable-based Internet service and seemed poised for continued growth. Charter's stock peaked at $27.75 per share in November 1999.

But debt began to catch up with Charter early this decade, especially as subscriptions began to fall off and its business practices were called into question. By October 2002, Charter stock had dipped to 76 cents per share. It has rebounded in recent months and on Friday was down 6 cents to $4.72 in late-afternoon trading on the Nasdaq stock market.

At the company's annual meeting Wednesday in Seattle, Allen, told investors, "There is still much work to be done but we are up to the challenge."

Earlier this month, the company announced a refinancing plan calling for repayment of up to $500 million of bank debt and tender offers for some other indebtedness.

"The amount of debt is absolutely staggering," analyst Juli Niemann of RT Jones in St. Louis said. "I think they'll have to restructure. They really have a daunting task ahead of them."


On the Net:

Charter Communications, http://www.charter.com

Respond to this story

Posting a comment requires free registration: