NEW YORK Cablevision Systems (CVC) tried to head off a potentially damaging financial scandal Wednesday by disclosing that an internal investigation turned up years of misreported expenses and fabricated invoices at cable channel American Movie Classics.
Although the company says the amounts of cash involved are too small to require a restatement of earnings, it fired AMC president Kate McEnroe and 13 other employees mostly senior staff. Rainbow Media CEO Josh Sapan, who oversees Cablevision’s programming services, is temporarily in charge.
The No. 6 cable operator also alerted government officials, tightened up the process to oversee expense accruals and hired outside lawyers and forensic accountants to investigate.
Cablevision declined to comment. But in a press release about the matter, CEO James Dolan says that the company “cannot tolerate any improprieties related to financial matters” and took measures “to help ensure that a problem of this type does not occur again.”
While details of the AMC scandal remain murky, the company says it found $6.3 million in expenses from 2003 improperly recorded in 2002. It caught all but $1.7 million before reporting its 2002 results.
Cablevision didn’t catch misreported expenses in 2000 and 2001 that it says were “similar in size.”
AMC officials apparently inflated the previous year’s expenses to give themselves easier budget targets in subsequent years.
The scandal could hurt Cablevision stock. “It’s the roach theory,” says Guzman & Co. analyst David Joyce. “Investors see one and assume there are many more.”
But Cablevision’s board has hired Willkie Farr & Gallagher to provide legal advice and Wilmer Cutler & Pickering to do an independent probe of the matter.