Cell phone maker Motorola Inc. has agreed to pay $25 million to settle federal complaints that it "knew, or should have known" Adelphia Communications Corp. misused a marketing agreement between the two companies to inflate its earnings.
"Adelphia paid money to Motorola which was immediately returned to Adelphia" and used to falsify earnings in 2000 and 2001, the Securities and Exchange Commission said in a report released late Tuesday.
Under the arrangement, Motorola provided digital cable television set-top boxes used by Adelphia. But Aldephia, according to the SEC, overpaid for the devices, only to receive refunds — which Adelphia called "marketing support payments" — from Motorola that it counted as revenue.
The transaction was designed by Adelphia to increase its earnings by about $18.3 million in 2000 and $28 million in 2001 through reduced operating costs equal to the amount of the marketing support payments from Motorola, according to the SEC.
"Motorola knew or should have known that Adelphia was misusing the marketing support agreement," the SEC said.
Motorola did not admit or deny the SEC's findings. A spokeswoman for the Schaumburg, Ill.-based company on Wednesday said Motorola was pleased to settle the matter and had disclosed it in a separate SEC filing earlier this year.
The $25 million settlement includes repaying $18 million in ill-gotten gains and prejudgment interest of $7 million.
Adelphia was once the nation's fifth-largest cable operator before an accounting scandal forced it to declare bankruptcy in 2002. Time Warner Inc.'s cable unit and Comcast Corp. bought most of the company's assets last year.
Shares of Motorola added 20 cents to $17.90 Wednesday.