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Fraud Charges Fly In Legal Flap Over Charter Rebuild

What began as a run-of-the-mill lawsuit by a Georgia contractor to get back $1.5 million it says Charter Communications Inc. failed to pay for rebuild work has escalated into allegations that the contractor and former employees at the MSO concocted a scheme to bilk the St. Louis-based MSO out of millions of dollars.

And earlier this month, the net was cast even wider, after attorneys for one of the defendants — former Crown Fiber Communications Inc. CEO Billy Ray Jones — issued subpoenas to four cable-network groups — ABC Cable Networks, MTV Animation, ESPN and Home Box Office Inc. — seeking information.

Lawyers for both sides weren’t talking about the nature of the subpoenas, but sources familiar with the matter said that Jones is likely seeking information that would counter Charter’s claims that the contractor bribed three former MSO executives with trips to National Association for Stock Car Auto Racing events. According to one person, Jones would seek to prove that distributing trips and tickets to sporting events is a regular practice in the cable industry.

Jones has a big connection to NASCAR — his son, Roy “Buckshot” Jones, is a former driver who has won several races in the Busch Grand National Series and was a driver for Petty Enterprises, the team founded by NASCAR legend Richard Petty.

Crown Fiber filed suit in state superior court in Gwinnett County, Ga., in November 2004, alleging that Charter failed to pay $1.5 million of a rebuild contract for systems formerly owned by Marcus Cable of Alabama. Charter countersued last December, citing the Racketeer Influenced and Corrupt Organizations Act (RICO) statute, and had the case moved to federal district court for the Northern District of Georgia in Atlanta later that month.

In its counterclaim, Charter alleged Crown Fiber and Jones conspired with several Charter employees to defraud the MSO. Crown, Charter claims, overcharged for service and secured exclusive contracts with the MSO by paying for trips to NASCAR races and the Bahamas for those Charter employees.

According to Charter’s counterclaim, Jones bribed former Charter Eastern Region senior vice president David McCall, former senior vice president of operations for the Gulf Coast region Ronald Johnson and former vice president of technology for Georgia Richard Ford. McCall, who pleaded guilty to one count of conspiracy to commit wire fraud in an unrelated case — a federal indictment involving accounting fraud and including three other former Charter senior executives — was sentenced to two years probation and a $200,000 fine in April.

Ford left Charter in 2003; Johnson departed in 2004.

Charter did not respond to queries for comment.

Jones sold his interest in Crown Fiber in 1999 to Quanta Services, a Houston contractor, but served as its vice president for cable operations for a period after the sale. He is no longer an employee of Quanta and is a retired investor, said his lawyer, Buddy Parker.

Johnson allegedly received large amounts of cash and gifts from Jones, Charter said. According to the documents, Johnson admitted in written interrogatories that he had received about $195,000 in cash and $49,000 in loans from Jones since 1998. Jones also gave Johnson a Mercedes Benz 500 SL, which Johnson later returned to Jones for $30,000 in cash.

Jones also allegedly lavished expensive gifts on the former Charter executive. According to the document, Johnson and his family received gifts from Jones including Louis XV Cognac worth about $2,000; specialty champagne worth more than $1,000; a crystal figurine and a set of crystal stemware; diamond earrings; Ferragamo and Judith Leiber purses; a Rolex watch and three leather NASCAR jackets.

Also, according to the interrogatories, Jones paid for all or part of 20 trips for Johnson, including jaunts to the Bahamas; Las Vegas; Panama City Beach, Fla.; Miami; New Orleans and Biloxi, Miss. Johnson also went on several day trips on Jones’s dime to NASCAR races in Dayton, Ohio; Richmond, Va.; Atlanta; Bristol, Conn.; Rockingham, N.C.; Charlotte, N.C.; Nashville; and Talladega, Ala., according to the counterclaim.

Ford seemed to prefer vehicles.

According to the counterclaim he received as gifts or long-term loans motorcycles, a pick-up truck, a “legends” race car, a “Buckshot Jones” covered car trailer to transport the legends car; a Corvette and a Jeep Wrangler. Ford also received trips to Destin, Fla.; and Sturgis, S.D., the site of the Black Hills Rally national motorcycle rally.

In return for those alleged bribes, the former Charter executives steered virtually all of the contract construction and maintenance work in the Gulf Coast region (including Alabama, Georgia, Florida and Louisiana) to Crown, despite what Charter called shoddy work and price gouging by the contractor.

For example, Charter pointed to one Crown Fiber job in Gwinnett County, Ga., where the contractor made several “drop buries” (the connection between the main cable and the individual customer home). While Charter said in the filing that it is industry practice to bury the cable at least 12 inches underground — to avoid the possibility of the customer accidentally cutting the cable while gardening or doing yard work — Crown Fiber buried 81% of the cable on that job at a depth of 4 inches or less.

Charter also claimed that at Johnson’s urging, some Gulf Coast systems were forced to drop contractors who were doing work in favor of Crown, which routinely charged more to complete the same tasks. In some instances, Crown charged as much as 60% more than the contractors they replaced.

For their part, Jones and Crown deny Charter’s allegations, adding that top executives at the MSO, including former CEOs Carl Vogel and Jerry Kent, were aware of the work Crown was doing, although there is no indication that either executive knew of subpar performance. Kent resigned from Charter in September 2001 and Vogel left the MSO in January 2005.

Crown alleges that things began to break down with Charter in 2002, after the MSO began negotiations on a two-year, $200 million contract with Crown. As part of that deal, Crown agreed to offer Charter a 9% discount to its normal prices.

In anticipation of that deal, Crown began discounting its services to Charter by 9% beginning in November of that year. Although Crown never got that two-year contract, Charter failed to pay the amounts owed.

According to the countersuit, Jones and McCall defrauded Charter through a land deal, forming a partnership, Marjo Investments, that purchased two parcels of land in South Carolina (four acres and two acres) for $350,000. According to Charter, McCall has a 25% interest in Marjo, although he contributed no capital to the entity. Shortly after the Marjo purchase, McCall caused Charter to enter into a lease agreement for the six-acre parcel for $117,000 annually. Later, McCall removed the four-acre property from the lease agreement — dropping the total parcel size to 2 acres — but continued to charge Charter the same amount for the lease. Marjo then sold the four-acre parcel to Charter — at McCall’s behest — for $360,000.

According to Charter, the “Marjo Scheme” netted about $1 million from Charter, a portion of which went into McCall’s pockets.

That argument may be moot, after a judgment in favor of Marjo was issued in a separate case in U.S. District Court for the District of South Carolina in Greenville. In that order issued on Sept. 8, U.S. District Court Judge Henry M. Herlong Jr. ruled that Charter knew well in advance of McCall’s interest in Marjo — he notified then-CEO Jerry Kent of his interest in the partnership — and the MSO approved it.

Charter also disclosed McCall’s Marjo relationship in its Securities and Exchange Commission filings.

As for Charter’s argument that McCall misrepresented himself in that he did not reveal that he received the interest without contributing any of his own funds, the judge ruled that was irrelevant.

“You can see where we are sort of at a full-blown war with Charter and are taking them on bit by bit,” Parker said in an interview last week.

Parker said that he plans to use the South Carolina ruling to knock out at least one of Charter’s claims in the Georgia case — that Marjo defrauded the MSO.

“That case and the court’s finding of fact in a legal sense will be jeopardy against Charter’s interests,” Parker said. “Having litigated those claims in a different court they can no longer raise those claims as viable claims in the Atlanta Court. We will be using the South Carolina opinion to essentially cut out that portion of their claims in the RICO case against Mr. Jones and Crown Fiber.”

Parker added that Charter’s claims that Crown and Jones bribed MSO executives — which his client vehemently denies — will remain part of the case.

No trial date in the Atlanta case has been set, but Parker said his client is willing to take the issue all the way to court.

“If that’s what it takes to vindicate himself, the answer is yes,” Parker said when asked if Jones was willing to take the case to trial.