EchoStar Communications Corp. said an internal investigation uncovered significant deficiencies in past financial-reporting controls, but the problem has been corrected and it won’t have to restate earnings.
EchoStar stock was hammered March 10, after a report in Bloomberg News said the No. 2 direct-broadcast satellite provider was being investigated by the Securities and Exchange Commission regarding accounting irregularities, including questionable payments to a consultant who is a personal friend of EchoStar chairman and CEO Charlie Ergen.
Although EchoStar would not comment on the article at the time, in a March 16 securities filing it said it had received a call from the SEC’s Enforcement Division inquiring about matters brought up in the Bloomberg article. EchoStar said it fully intends to cooperate with that inquiry.
In a 10-K filing, EchoStar said it discovered “one instance in which one of our executive officers in charge of certain business functions directed the preparation in prior years of inaccurate documentation that was used to determine payments made to a vendor. We have also identified several other significant deficiencies, none of which individually or in the aggregate constituted a 'material weakness’ in our internal control over financial reporting as of Dec. 31, 2004.”
EchoStar said it intends to immediately make changes in governance, controls and operating procedures.
Talking to analysts about fourth-quarter results, Ergen commented briefly on the accounting issues, adding the allegations were made by an employee who resigned. Those allegations were forwarded to EchoStar’s legal counsel and led to the internal investigation.
“While from a personal standpoint you’d like to be perfect as a company, and I am disappointed that a review was necessary, I am very pleased that at least, at EchoStar in this instance, the system worked,” Ergen said on the conference call. “We received good recommendations from our audit committee, it does include one where we take remedial action against an executive, but it has a lot of other good recommendations that we are embracing as a company and we are implementing.”
Ergen did not identify the executive.
EchoStar’s stock price dropped more than 6% ($1.87), to $28.72, on March 10 when the Bloomberg article first came out, but began to rebound on March 17 in light of the SEC filing and strong quarterly numbers.
In afternoon trading March 17, EchoStar stock was up $1.30 (4.5%) to $30.13.