Tuesday, October 09, 2007

What Are Friends For?

AP (10.09.07):
"Investor lawsuits in the Enron scandal and other corporate wrongdoing hinge on a case before the Supreme Court that poses this question: Can banks, lawyers, accountants and suppliers be held liable for scheming with publicly held companies that deceive their stockholders?

The justices were to hear arguments Tuesday in the securities fraud case investors brought against Motorola Inc. and Scientific-Atlanta Inc. over their deals with one of the largest cable TV providers in the country, Charter Communications, Inc."

Supreme Court Considers Securities Case

What happened was back in the late 1990s, some of Charter's executives cooked up a rather tawdry little scheme to inflate Charter's revenues. They began to pay Motorola and Scientific-Atlanta (the manufacturers of Charter's cable TV boxes) $20.00 more per box than they had been paying. In turn, Motorola and Scientific-Atlanta turned around and used the premium payments to buy advertising from Charter.

"Charter reported the advertising payments as revenue, a step that helped Charter paint a rosy financial picture for the fourth quarter of 2000, a move designed to artificially inflate the price of the stock." For obvious reasons, Charter didn't inform investors.

Motorola and Scientific-Atlanta are using the "not our fault; not our problem" defense. Like they didn't know full well what was going on. Bloomberg (10.08.07):

"Motorola and Scientific-Atlanta say they should be shielded from fraud claims even if investors can prove the allegations are true. The companies say it was Charter that decided how to account for the transactions in the financial statements it made public.

'It would open up the Motorolas and Scientific-Atlantas of the world to a situation where they could be liable for securities fraud because someone else booked these transactions in a false matter,' said Andrew McBride, a corporate litigator at Wiley Rein in Washington."

U.S. Supreme Court Case May Be 'Securities Law's Roe v. Wade'

On the other hand, there's that pesky little issue of backdated contracts. "The lawsuit says the set-top box contracts were backdated to make the two sets of transactions appear unrelated."

"Shareholder advocates say the alleged backdating is damning evidence that Motorola and Scientific-Atlanta played central roles in a scheme of deception and weren't simply innocent business partners."

The Administration's position? "The companies have the support of the Bush administration's top courtroom advocate, Solicitor General Paul Clement. In a court filing, Clement argued that letting the lawsuit go forward would 'constitute a sweeping expansion' of investor rights."

And we certainly can't allow that now, can we.

Jesus. And we thought we were cynical.

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