Two SEC announcements this week concerning financial wrongdoing by cable-industry executives may have dredged up some unpleasant memories for cable investors burned by the Adelphia Communications scandal that broke in 2002, which not only resulted in Adelphia's eventual bankruptcy but also helped depress other cable stocks for years.
The SEC announced Thursday that set-top supplier Scientific-Atlanta has agreed to pay $20 million to settle charges that it aided and abetted Adelphia in manipulating its earnings reports by entering into a "marketing support agreement" in 2000 with Adelphia. Specifically, the SEC alleges that Adelphia asked Scientific-Atlanta, now a unit of Cisco, to increase the price of the digital set-tops it was selling to Adelphia but pay the amount of the increase back to the cable operator in the form of marketing support. Adelphia's improper accounting treatment of the marketing support allowed it to inflate its earnings by roughly $43 million.
The arrangement with Adelphia had no impact on Scientific-Atlanta's financial statements, the SEC says.
Without admitting or denying the allegations in the SEC's complaint, Scientific-Atlanta has agreed to pay $20 million in disgorgement. Two S-A executives, SVP of Operations Wallace Haislip and SVP Julian Eidson, whom the SEC found were responsible for approving the marketing agreement, agreed to "the issuance of cease-and-desist orders for their respective roles in causing Adelphia's violations," without admitting or denying the SEC's findings.
On Wednesday, the SEC announced that a U.S. district court judge in Georgia has entered a final judgment against Frank Loomans, a former manager of investor relations for Cox Communications, in an insider-trading case, ordering Loomans to pay $385,000 in fines and barring him from serving as an officer or director of a public company. According to the SEC complaint, between July 2000 and July 2001 Loomans engaged in insider trading in options for securities of both Cox and video-on-demand vendor Concurrent Computer Corporation, which had a business relationship with Cox.
The SEC claims that Loomans used "highly sensitive and detailed nonpublic information" obtained through his work at Cox's Atlanta headquarters to trade in a brokerage account in the name of his father, Luc Loomans, who lived in Brussels, Belgium at the time. Loomans placed the trades by telephone and via the Internet from a computer at Cox, says the SEC, and illegally gained $285,505. Loomans consented to the entry of the final judgment, which calls on him to pay $285,505 in disgorgement, $75,355.33 in interest and a $25,000 civil penalty, without admitting or denying any of the SEC's allegations