EchoStar Reportedly in Probe

Shares of EchoStar Communications Corp. fell sharply Thursday after a news report said the nation’s second-largest satellite TV provider might have improperly booked transactions with suppliers and made questionable consulting payments.

A Bloomberg News report, citing unidentified sources, said an internal probe by the audit committee of the EchoStar board had uncovered the allegedly improper practices after being alerted to potential accounting problems by the company’s accountant, KPMG. The accounting firm discovered the irregularities as part of an audit of the company’s 2004 financial data.

Bloomberg said the Securities and Exchange Commission had also opened an inquiry into the role Chairman and Chief Executive Charles Ergen played in EchoStar’s accounting. The consulting payments under investigation allegedly were made to an unnamed friend of Ergen, the report said.

Shares in the Englewood, Colo.-based satellite provider fell Thursday by $1.87, or 6.1%, to close at $28.72 on Nasdaq.

The shares were also affected by a federal district court ruling late Wednesday denying EchoStar’s motion to dismiss a patent infringement case brought by TiVo Inc., a maker of digital television recorders.

Yet analysts said the market was reacting mostly to the accounting probe, the repercussions of which they said were difficult to assess. “We’re all groping around in the dark,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. “There’s no reliable information to allow investors to size up the issue.”

Analysts noted that EchoStar did not issue a denial.

EchoStar spokesman Steve Caulk declined to comment.

Analysts said the dollar amounts of the questionable transactions could not be determined. They said the only contracts of any material size involved programmers of TV channels or Lockheed Martin Corp., which supplies EchoStar’s satellites.

Analysts said one effect of the probe could be a delay in the release of EchoStar’s fourth-quarter earnings. Should KPMG not sign off on the figures, analysts said, EchoStar may have to delay its SEC filing, now scheduled for next Thursday.

Analysts downplayed the effect the accounting probe could have on Ergen’s hold on the company, given that the co-founder controls 92% of EchoStar’s voting shares and 54% of its economic interests. In addition, only three of EchoStar’s eight board members are independent.