Charter Communications Fined $25 Million by SEC
Washington D.C., Nov. 14, 2023 — In a significant enforcement action, the Securities and Exchange Commission (SEC) has announced a settlement with Charter Communications Inc., CHTR (NASDAQ) imposing a substantial $25 million penalty. This action comes as a result of Charter's violations of internal accounting controls in relation to its stock buybacks.
Understanding Charter's Buybacks Violation of SEC Rule 10b5-1
The core of the issue lies in Charter's handling of its stock buyback programs. According to the SEC’s order, Charter was authorized by its board to conduct buybacks under SEC Rule 10b5-1. This rule provides a safe harbor against insider trading allegations, provided certain conditions are met. Key among these is the relinquishment of the ability to alter trading plans post-adoption.
However, the SEC found that Charter's buyback plans from 2017 to 2021 included "accordion" provisions. These provisions granted Charter undue flexibility, allowing it to modify the total amounts for stock buybacks and the timing, post the plans' adoption. This flexibility was in direct violation of Rule 10b5-1, as it deviated from the board's authorizations and the rule's stringent requirements.
The SEC’s investigation highlighted a critical lapse in Charter's internal controls. The company failed to implement measures to ensure that the discretion allowed by the accordion provisions aligned with the board's directives and complied with Rule 10b5-1.
Melissa Hodgman, Associate Director in the SEC’s Division of Enforcement, emphasized the importance of adherence to Rule 10b5-1 for companies engaging in buybacks. She stated, “Companies must have controls that reasonably assure their trading plans meet all of the rule’s conditions. This includes the fundamental requirement of relinquishing the ability to influence trade amounts or timing after the plans are in effect.”
As part of the settlement, Charter has agreed to cease and desist from future violations of Section 13(b)(2)(B) of the Exchange Act and to pay the $25 million penalty. This settlement, while not an admission of guilt, marks a significant acknowledgment of lapses in Charter's internal control mechanisms.
The SEC's action against Charter CHTR (NASDAQ) serves as a stark reminder of the regulatory obligations companies face in stock buybacks and the importance of robust internal controls. It underscores the SEC's commitment to enforcing compliance with securities laws, ensuring the integrity of corporate governance, and protecting investor interests.
The investigation, led by Joseph Zambuto, Jr. and supervised by Assistant Director Rami Sibay, reflects the SEC's ongoing vigilance in monitoring corporate compliance with securities laws, particularly in complex areas like stock buybacks under Rule 10b5-1.
References: Charter Communications to Pay $25 Million
