Wednesday, May 9, 2007
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.