a. Did Charter make false statements about the company's financial strength?
b. What role is this fraud did Scientific-Atlanta play?
c. In agreeing to this plan, didn't all of the companies engage in fraud?
d. if Scientific-Atlanta and Motorola helped Charter inflate its financials that it filed with the SEC, why are they not liable for their involvement?
e. Does that mean that Scientific-Atlanta and Motorola get away with their involvement in Charter's scheme?
Charter Communications, a cable operator, engaged in a variety of fraudulent practices to pump up its financial statements. When these efforts fell short, Charter approached two of its suppliers, Scientific-Atlanta and Motorola, for help. These two companies supplied Charter with the digital cable converter (set top) boxes that Charter furnished its customers. Charter arranged to overpay the suppliers $20 for each box it purchased, with the understanding that they would return the overpayment by purchasing advertising from Charter. These transactions had no economic purpose other than inflating Charter's revenue and operating cash flow numbers by $17 million.
The inflated numbers were included in financial statements filed with the SEC and reported to the public. Purchasers of Charter stock sued the two suppliers alleging that they had violated §10(b) and Rule 10b-5. The District Court granted Scientific-Atlanta's motion to dismiss. The United States Court of Appeals for the Eighth Circuit affirmed. The Supreme Court granted certiorari.