KPMG Audit Prompts EchoStar Probe

An internal investigation reportedly found records that showed chairman and chief executive officer Charles Ergen may have been involved in the questionable consulting payments and improper vendor transactions.

The audit committee of EchoStar Communications Corp. is investigating whether the company improperly booked transactions with suppliers, according to Bloomberg, citing people familiar with an internal probe of the company’s accounting.

In addition, the wire service reported that the nation’s second-largest satellite-television company may have made questionable consulting payments to a friend of chairman and chief executive officer Charles Ergen.

KPMG initially raised concerns while auditing EchoStar’s accounts for the fiscal year ended December 31, 2004, noted Bloomberg. Audit committee chairman Raymond Friedlob — a partner with the law firm McKenna Long & Aldridge and an EchoStar director since 1995 — retained outside counsel to investigate KPMG’s concerns, reported the wire service. According to Bloomberg, his probe found records that showed Ergen may have been involved in the consulting payments and vendor transactions.

Citing two people familiar with the probe, who declined to be identified, the wire service added that the Securities and Exchange Commission is looking into the role that Ergen played in the company’s accounting. Bloomberg also noted that since July, the SEC has been examining how EchoStar and other telecommunications companies account for their subscribers.

Last July, CFO.com reported EchoStar’s announcement that chief financial officer Michael McDonnell resigned, effective August 13, to relocate and take a position nearer to his family on the East Coast. According to published reports, McDonnell had joined the company four years earlier after 13 years with PricewaterhouseCoopers. EchoStar’s website lists David J. Rayner as executive vice president and CFO as of December. According to the website, Rayner has held various financial and operational management positions at Time Warner companies since 1982; from 1998 until he joined EchoStar, Rayner served as senior vice president and chief financial officer of Time Warner Telecom in Denver.

Ergen founded the Englewood, Colorado-based company in 1980 and still controls 91 percent of the shareholder votes. According to Forbes, Ergen is the 23rd richest American, with a net worth of worth of $7.3 billion.

Ergen, Friedlob, KPMG spokesman Tom Fitzgerald, and SEC spokesman John Heine offered no comment to the wire service.

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