According to a press release dated January 15, 2008, a U.S. Supreme Court ruling on Tuesday makes it harder for investors to sue companies after a fraud, a decision that could make it tougher for swindled Enron investors to recover any money from the failed energy firm's bankers. In Stoneridge Investment Partners LLC vs. Scientific-Atlanta Inc. et al., Stoneridge sued after shares of Charter Communications Inc. fell once the cable operator admitted that it had fraudulently manipulated its quarterly reports by altering its business arrangements with Scientific-Atlanta and Motorola. The Supreme Court's majority opinion said Scientific-Atlanta's "deceptive acts were not communicated to the public." Therefore, the petitioner "cannot show reliance upon any of respondents' actions except in an indirect chain that we find too remote for liability," according to the opinion, which was written by Anthony Kennedy and joined by John Roberts Jr., Antonin Scalia, Clarence Thomas and Samuel Alito Jr. The decision from the high court is the latest in a string of disappointments for investors, as justices decided 5-to-3 that shareholders can not necessarily sue third parties that help companies deceive investors.
According to a press release dated May 31, 2006, the Eighth U.S. Circuit Court of Appeals affirmed a district court's dismissal of a securities fraud class action as to claims against third-party vendors not alleged to have made material misrepresentations or omissions to the shareholders of a company. The Eighth Circuit ruled that the third-party vendors could at most be liable for aiding and abetting, which does not give rise to a securities fraud claim. Stoneridge Investment Partners, on behalf of investors who purchased Charter Communications Inc. stock, sued Charter for securities fraud, alleging Charter participated in a fraudulent scheme to falsely inflate its financial health by delaying the disconnection of customers who were no longer paying their bills and entering into sham transactions with equipment vendors. Stoneridge named the vendors, Scientific-Atlanta Inc. and Motorola Inc (the vendors), alleging violations of the Securities Exchange Act of 1934 §10(b) and Rule 10b-5. Specifically, Stoneridge claimed that Charter, a provider of cable services, engaged in sham transactions where Charter paid an additional $20 per vendor-provided set-top boxes to the vendors, and the vendors agreed to pay Charter additional payments in the form of advertising fees. …The Eighth Circuit ruled that the claims against the vendors were aiding and abetting claims that are not covered by §10(b) and Rule 10b-5.
According to the Company’s Form 10-K for the fiscal year ended December 31, 2005, on June 30, 2005, the Court issued its final approval of the settlements. At the end of September 2005, after the period for appeals of the settlements expired, Stipulations of Dismissal were filed with the Eighth Circuit Court of Appeals resulting in the dismissal of the two appeals with prejudice. Procedurally therefore, the settlements are final. As amended, the Stipulations of Settlement provided that, in exchange for a release of all claims by plaintiffs against Charter and its former and present officers and directors named in the Actions, Charter would pay to the plaintiffs a combination of cash and equity collectively valued at $144 million, which was to include the fees and expenses of plaintiffs’ counsel. Of this amount, $64 million was to be paid in cash (by Charter’s insurance carriers) and the $80 million balance was to be paid in shares of Charter Class A common stock having an aggregate value of $40 million and ten-year warrants to purchase shares of Charter Class A common stock having an aggregate warrant value of $40 million, with such values in each case being determined pursuant to formulas set forth in the Stipulations of Settlement. However, Charter had the right, in its sole discretion, to substitute cash for some or all of the aforementioned securities on a dollar for dollar basis. Pursuant to that right, Charter elected to fund the $80 million obligation with 13.4 million shares of Charter Class A common stock (having an aggregate value of approximately $15 million pursuant to the formula set forth in the Stipulations of Settlement) with the remaining balance (less an agreed upon $2 million discount in respect of that portion allocable to plaintiffs’ attorneys’ fees) to be paid in cash. In addition, Charter had agreed to issue additional shares of its Class A common stock to its insurance carrier having an aggregate value of $5 million; however, by agreement with its carrier, Charter paid $4.5 million in cash in lieu of issuing such shares. As a result in 2004, the Company recorded a $149 million litigation liability within other long-term liabilities and a $64 million insurance receivable as part of other non-current assets on its consolidated balance sheet and an $85 million special charge on its consolidated statement of operations.
In a press release dated March 9, 2005, Plaintiff's Counsel announced that the Class Action Plaintiff in the action pending in the United States District Court, Eastern District of Missouri entitled, In re Charter Communications, Inc. Securities Litigation, MDL Docket No. 1506 (CAS), has entered into Stipulations of Settlement, dated as of January 24, 2005 with Settling Class Action Defendants Charter Communications, Inc., Individual Defendants, and Arthur Andersen LLP to resolve the issues raised in the Class Action. The Settlement Hearing will be held on May 23, 2005, to determine: (1) whether the settlement of claims in the Class Action against the Settling Class Action Defendants for $146,250,000, consisting of cash in the amount of $66.25 million (plus accrued interest), Charter common stock having an aggregate value of $40 million and warrants to purchase Charter common stock having an aggregate value of $40 million subject to a potential upward adjustment, (as well as the adoption of certain corporate governance provisions), should be approved as fair, just, reasonable and adequate to all members of the Settlement Class; (2) whether the proposed Plan of Allocation is fair, just, reasonable, and adequate; (3) whether the application of Class Action Plaintiff's Counsel for an award of attorneys' fees and expenses should be approved; (4) whether the Class Action Plaintiff should be granted a Compensatory Award; and (5) whether the Class Action should be dismissed with prejudice as set forth in the Stipulations filed with the Court.
As summarized by the Company’s FORM 10-K for the year ended December 31, 2004, fourteen putative federal class action lawsuits (the “Federal Class Actions”) were filed against Charter and certain of its former and present officers and directors in various jurisdictions allegedly on behalf of all purchasers of Charter’s securities during the period from either November 8 or November 9, 1999 through July 17 or July 18, 2002. In October 2002, Charter filed a motion with the Judicial Panel on Multidistrict Litigation (the “Panel”) to transfer the Federal Class Actions to the Eastern District of Missouri. On March 12, 2003, the Panel transferred the six Federal Class Actions not filed in the Eastern District of Missouri to that district for coordinated or consolidated pretrial proceedings with the eight Federal Class Actions already pending there. The Panel’s transfer order assigned the Federal Class Actions to Judge Charles A. Shaw. By virtue of a prior court order, StoneRidge Investment Partners LLC became lead plaintiff upon entry of the Panel’s transfer order. StoneRidge subsequently filed a Consolidated Amended Complaint. The Court subsequently consolidated the Federal Class Actions into a single action (the “Consolidated Federal Class Action”) for pretrial purposes. On June 19, 2003, following a status and scheduling conference with the parties, the Court issued a Case Management Order setting forth a schedule for the pretrial phase of the Consolidated Federal Class Action. Motions to dismiss the Consolidated Amended Complaint were filed. On February 10, 2004, in response to a joint motion made by StoneRidge and Defendants Charter, Vogel and Allen, the Court entered an order providing, among other things, that: (1) the parties who filed such motion engage in a mediation within ninety (90) days; and (2) all proceedings in the Consolidated Federal Class Actions were stayed until May 10, 2004. On May 11, 2004, the Court extended the stay in the Consolidated Federal Class Action for an additional sixty (60) days. On July 12, 2004, the parties submitted a joint motion to again extend the stay, this time until September 10, 2004. The Court granted that extension on July 20, 2004. On August 5, 2004, Stoneridge, Charter and the individual defendants who were the subject of the suit entered into a Memorandum of Understanding setting forth agreements in principle to settle the Consolidated Federal Class Action. These parties subsequently entered into Stipulations of Settlement dated as of January 24, 2005 which incorporate the terms of the August 5, 2004 Memorandum of Understanding.
The original complaint charges Charter and certain of its officers and directors with violations of federal securities laws. Among other things, plaintiff claims that defendants' material omissions and the dissemination of materially false and misleading statements regarding the nature of Charter's revenue and earnings caused Charter's stock price to become artificially inflated, inflicting damages on investors. The Complaint alleges that defendants overstated Charter's revenue, failed to appropriately account for installation costs and artificially inflated the number of subscribers for the Company's basic cable services. On July 18, 2002, when a Merrill Lynch analyst expressed concerns about potentially misleading accounting practices, Charter's stock fell more than 13%. Additionally, a subsequent article in Forbes discusses a Credit Suisse First Boston report that further amplifies these concerns and describes how Charter handles the impact of "churn" -- labor and advertising costs -- on the Company's balance sheet, by improperly capitalizing approximately 30% of its installation labor costs over an extended time period.