Whistleblower’s 5th Circuit Brief Accuses Charter of ‘Cooking the Books’

The appeal of Darrell Seybold, the former Charter Communications sales manager who alleges he was terminated for exposing Charter’s unlawful conduct, in violation of the whistleblower protections in the 2002 Sarbanes-Oxley (SOX) Act (see 2302200002), “is exactly the type of case for which SOX was intended,” said his opening brief Monday in the 5th U.S. Circuit Court of Appeals (docket 23-10104). U.S. District Judge Brantley Starr for Northern Texas in Dallas dismissed Seybold's claims in a January order for lack of specificity in his allegations.

Seybold “was a long-standing and highly rewarded sales manager,” said his brief. Charter, in contrast, “has a history of SEC reporting criminality that misstated corporate health to Wall Street and investors,” it said. Charter incurred “prior criminal prosecution of its executives for false accounting techniques that misreported growth through inflating consumer numbers,” it said.

Seybold reported four types of unlawful conduct “triggering one or more of SOX’s six enumerated whistleblowing protections,” said his brief. His brief cites one “accounting gimmick” in which Charter moved thousands of seniors in assisted living whose services were covered under commercial contracts with the owners of the facilities into individual residential accounts. What was a commercial account with a single 100-resident nursing home and a single bill for $1,000 a month became 100 new residential accounts, it said. Wall Street was led “to falsely believe Charter was obtaining new residential consumers,” it said.

Seybold estimates the practice inflated Charter’s residential subscription revenue by tens of millions of dollars, said his brief. The conduct “constituted a fraud against shareholders by falsely claiming growth when residential customer numbers were shrinking,” it said. Seybold began “reporting and opposing” the conduct in 2018 “through numerous emails up and down the chain of command, including persons with supervisory authority over him,” it said. “Instead of following up on these emails by investigating Seybold’s complaints or ending its illegal policies, Charter instructed Seybold to stop reporting Charter’s behavior.”

Seybold maintains he properly alleged facts “that placed Charter on notice that he was complaining of conduct that constituted one of the SOX enumerated violations,” said the brief. He accuses Charter of “cooking the books in violation of SEC regulations, mail fraud and wire fraud,” it said. He asserts the district court erred by dismissing his first amended complaint, and that it abused its discretion by denying his leave to file his second amended complaint.