Charter subpoenaed

A grand jury has subpoenaed documents from Charter Communications related to how the company counts subscribers and capitalizes expenses.

The subpoena, which Charter received last Thursday, comes out of the U.S. District Attorney’s Office for the Eastern District of Missouri and seeks information relating to Charter’s current and disconnected customers and its policies and procedures relating to the expense of various costs.

In response to concerns about its customer numbers, Charter said that in February it increased its reserves for uncollected customer accounts and that it expected to remove approximately 120,000 of these “marginal” customers from its subscriber base in the first quarter of 2002. Charter actually ended up disconnecting 145,000 customers.

The subpoena covers similar ground as class action lawsuits that have been filed against the company. Those suits claim that Charter inflated its subscriber base and improperly accounted for installation costs over an extended period.

In a prepared statement released last Wednesday responding to the class action suits, David Andersen, Charter’s senior vice president of communications, said the company’s financial statements were consistent with generally accepted accounting principals (GAAP) and had withstood a review by the company’s auditor, KPMG. Charter, he said, believes “our financial reports and disclosures will be validated.”

In reference to the subpoena, which Charter revealed on Friday, Andersen said in a statement that the company will “cooperate fully.”

In response to the news, Bear Stearns analyst Raymond Lee Katz downgraded Charter to neutral from buy.

But this move, he said in a note, was not based on the merits of the case. In fact, given the public information, Katz said he believes Charter’s accounting meets GAAP standards.

Rather it is in response to the pressure accounting concerns will have on the stock.

“This investigation could go on through the end of the year, even if nothing is uncovered. In our opinion, this could weigh on the stock for some time, at least until the U.S. District Attorney’s office releases its findings on the investigation,” he said.