Charter Communications fined $25M over stock buyback violations

The SEC said Charter, whose services are branded as Spectrum, approved stock buybacks that used nonconforming plans that did not comply with Rule 10b5-1, which offers protections for companies and individuals from insider trading liability under certain conditions, according to the agency’s order released Tuesday. The SEC said the company’s board of directors authorized stock buybacks only if they complied with the rule.

Charter neither admitted nor denied the allegations and agreed to cease and desist from further violations.

The details: Rule 10b5-1 requires participants in a company stock buyback plan not retain the ability to change planned purchases or sales after they adopt the trading plan.

From 2017-21, Charter included “accordion” provisions in some stock buyback plans that “allowed Charter to change the total dollar amounts available to buy back stock and to change the timing of buybacks after the plans took effect,” the SEC said in a press release. Because those provisions did not comply with the rule, the agency found the buybacks did not comport with the board’s authorization.

The company used accordion provisions in nine different trading plans over the four-year period, the SEC said.

Compliance considerations: “In conducting these share buybacks, Charter did not devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that its repurchases were executed and access to its assets was permitted only in accordance with the board’s authorizations,” the SEC said in its order.

Charter should have established a reasonable process to review the trading plans, specifically the accordion provisions, to ensure they conformed with the rule, the agency said. But the company’s internal accounting controls did not provide this review.

Company response: In an emailed statement, Charter noted it fully cooperated with the SEC’s inquiry.

“Charter’s share repurchase plans were well documented and were fully disclosed as well as properly accounted for in Charter’s financial statements,” the company said. “The order does not require Charter to cease repurchasing its stock, and we remain committed to a share buyback program and our previously stated leverage targets.”