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Charlie Ergen under investigation // 2005-03-11
Investigators probe EchoStar's accounting practices
Knight-Ridder / Tribune Business News

Mar. 11--A surprise accounting probe has hit satellite giant EchoStar and its maverick leader Charlie Ergen.

Investors slammed EchoStar yesterday, sending shares down $1.87, or 6 percent, to $28.72 after a report revealed the company is the subject of an internal and SEC investigation.

Investigators are looking to see whether the company acted improperly in the way it books the deals it makes with suppliers.

The probe also is focusing on Ergen himself, who may have made inappropriate consulting payments to friends, according to a report from Bloomberg News.

EchoStar spokesman Steve Caulk declined to comment.

This is a major setback for the nation's No. 2 satellite company behind Rupert Murdoch-owned DirecTV. EchoStar's Dish system has been showing considerable success swiping customers from cable operators like Time Warner Cable.

The Dish system made a name for itself as the cheapest guy on the block while providing similar programming to cable and DirecTV.

Depending on the findings of the probe, EchoStar may be forced to reduce its past profits. Ergen might even take the fall, though analysts said they don't expect EchoStar's co-founder to lose control of his company.

Wall Street analysts said they were shocked to learn of the investigation.

"EchoStar historically has been the most conservative in accounting of any company I've seen," said SG Cowen analyst Tom Watts, noting that Ergen is an accountant by training. "This is the last company you would expect to have these issues."

He also called Ergen "one of the cheapest guys around," raising doubts as to whether the EchoStar boss would put any friends on the company payroll.

The trouble for EchoStar began with an audit by its accounting firm KPMG.

The accounting probe was just one headache for Ergen yesterday. He also had a big setback in court. A federal court in Texas denied EchoStar's motion to dismiss a patent infringement claim by TiVo.