Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, May 9, 2007

Motorola Settles SEC Charges in Connection with Adelphia

On May 8, the SEC settled charges against Motorola, Inc. relating to its involvement in Adelphia's accounting fraud.  The Order finds that, in 2001, Motorola, Inc.entered  into  a  round-trip  cash   transaction  with  Adelphia.  Under  a  purported  marketing  support agreement, Adelphia paid  money  to  Motorola  which  was  immediately returned to Adelphia in the form of marketing  support payments.  The agreement, which was backdated and applied retroactively to the  prior fiscal year, provided  that  Motorola  would  increase  the  price  of digital cable television set-top boxes it was selling to Adelphia  and pay the amount of the price increase back to Adelphia in the  form  of  payments to market Motorola's cable television set-top boxes. Adelphia  did not use the marketing support payments to market Motorola's  cable television  set-top  boxes.  Instead,  Adelphia  recorded  the   price increase it paid Motorola as a capital  expense,  and  recognized  the marketing support payments as  a  contra  marketing  expense,  thereby artificially reducing its marketing expense  and  increasing  EBITDA.  The Order also finds that Motorola employees were aware of a number of unusual and unique facts that together demonstrated that Adelphia  was misusing the marketing support agreement.

    The  Order  requires Motorola to pay $25 million in disgorgement  and  prejudgment interest.  Such funds will be held pending the approval of a  plan  to distribute the funds to the victims of the Adelphia fraud.

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