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Former Charter official implicates Paul Allen

A former Charter Communications Inc. executive sentenced last week to probation in a plot to dupe investors through fraudulent cable television disconnect practices said in a court document that Charter Chairman Paul Allen was aware of the scheme.
/ Source: The Associated Press

Charter chairman Paul Allen was aware of an accounting scandal at the nation’s third-largest cable television provider, according to a former executive convicted in the scheme.

Former Charter vice president James “Trey” Smith III on Wednesday filed a counterclaim against the suburban St. Louis company in a dispute over legal fees related to the accounting scandal involving the nation’s third-largest cable TV company.

Michael Nank, a spokesman for Allen, said Thursday, “Any suggestion that Paul knew of any impropriety whatsoever is utterly and completely wrong.”

Smith was among four former executives sentenced April 22 in federal court in St. Louis, where he received two years of probation and was fined $175,000.

All four men pleaded guilty to one felony count of conspiracy to defraud. Allen and the company itself were not accused of wrongdoing.

In February, Charter sued all four executives to recoup legal costs. For Smith, that amounted to $1.9 million.

Smith’s response claimed that Allen and former Charter general counsel Curtis Shaw were aware of the scheme and implicitly approved it. Smith wants the federal court to deny Charter’s request that he repay $1.9 million in legal fees, and that Charter pay an additional $1 million in legal costs.

“A corporate giant owned by one of the richest men in the world is trying to bankrupt this man,” John Roche, Smith’s attorney, said Thursday.

Charter spokesman David Andersen said the company’s agreement with all four executives was that it would pay legal costs only if the men were found innocent.

The legal case, as well as scores of lawsuits from stockholders, stems from a scheme in which the executives instructed employees to delay disconnecting customers seeking to end their service and those failing to pay their bills until after the end of financial quarters.

The disconnect plan came early this decade as Charter was finding it difficult to meet projected subscriber goals because of the weak economy and increased competition from satellite TV companies.

Smith cited an e-mail from former Charter president and chief executive officer Carl Vogel to Allen. In the e-mail on Nov. 12, 2001, Vogel wrote that “the way we will make the numbers is by carrying over some 86,000 disconnects, which I don’t like but I will allow until I have better visibility to the 2002 budget.”

The e-mail “establishes conclusively that Allen was aware of, and therefore implicitly (if not explicitly) approved of, the managed disconnect practices ...,” Smith’s counterclaim read.

But Anderson noted that the e-mail was among the many documents the government looked at during its investigation.

At the April 22 sentencing, former chief financial officer Kent Kalkwarf was sentenced to a year and two months in prison and former chief operating officer David Barford was sentenced to a year and a day. Another former vice president, David McCall, received the same sentence as Smith — two years of probation.

Kalkwarf, Barford and McCall were fined $200,000. U.S. District Judge Carol Jackson said she considered Smith the least culpable, fining him $175,000.

In August, Charter agreed to pay $144 million in cash and stock to settle shareholder lawsuits accusing the company of inflating its financial results and customer numbers.

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

The company has continued to struggle financially.

Vogel, who was not accused of wrongdoing in the accounting scandal, resigned in January after last year’s big losses — $4.35 billion, on the heels of $242 million in red ink in 2003 — and a debt load that stood at $19.5 billion as of Dec. 31.