Charter E-Mails a Smoking Gun - Multichannel

Charter E-Mails a Smoking Gun

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Former Charter Communications Inc. executives Kent Kalkwarf and Dave Barford
left an incriminating trail of electronic mails that appear to back up the
federal government’s claims that they and two other former employees schemed to
artificially inflate the MSO’s subscriber numbers.

According to the 27-page indictment filed July 24 against Barford, Kalkwarf
and former senior vice presidents David McCall and James "Trey" Smith, the four
former executives inflated subscriber numbers by "managing disconnects," or
continuing to include disconnected customers on Charter’s books, delaying
disconnects for subscribers who had either requested to discontinue service or
who had not paid for service and creating completely fictitious subscribers.

McCall pled guilty Friday to one count of conspiracy to commit wire
fraud.

According to the indictment, Barford and Kalkwarf also attempted to create a
pool of disconnected customers that it could use to pad future results.

Barford sent an e-mail to employees at two Charter divisions Oct. 5, 2001,
which appeared to back up that claim, stating: "Please provide: Basic-net gain
in 4Q [the fourth quarter] to get to 1% and 1.4% growth rate for the year.
[Then] tell me how many managed disconnects you would still have left over after
getting to these numbers."

On Nov. 9, according to the document, Barford sent an e-mail to a senior
Charter executive stating: "Bottom line is that we will manage to the number of
1% growth but will carry over significant amount of disconnects that we are
trying to quantify now."

One month later, Dec. 7, Barford sent another e-mail to Kalkwarf and a senior
Charter executive stating: "We are trying to figure out how many we could
disconnect in December and still be in line with others. Is 0.5% or 0.6%
sellable without revising downward [guidance]? Give me a call on my cell ...
when you get a break."

In response, Kalkwarf wrote a memo that appears to lay out an ominous
scenario.

"1. One idea is to report the 6,950,000 customers as our actual customers
(giving us a growth rate of approximately 1%) but disclose in the call that we
have customers included in this number that were the last customers we brought
on for the discounted policy ...

2. We can continue on the same path until late next year and bleed the
disconnects in over time.

3. Take the hit in the first quarter on the call for the change in strategy.
[Similar] discussion as point number 1."

Kalkwarf concluded that he preferred option No. 1.

"We should still take a hit (140,000 customers times $3,600 per customer is
just under $1 per share), but at least we are running the business and we can
argue that we did end the year at approximately 1%," Kalkwarf said in the
memo.

But in an e-mail he sent to Kalkwarf Dec. 10, Barford said: "We should stick
with the original plan to get to 61,000 net gain for December. This will help us
get revenue and cash flow for the year, and then we can reserve the customers to
get to 0.5%."

That same day, Kalkwarf responded: "My thoughts are to discuss the issue in
the first quarter of next year, as we are going to take a hit for it no matter
what, and if we have 0 or negative growth this year after our statements of last
week and earlier, we take two hits -- one for customer growth and one for
continued lack of [credibility]."

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