Edward R. Cheramy, a central figure in the government's fraud case against fallen long-distance giant IDB Communications Group Inc., pleaded guilty Friday to charges that he lied to investors in 1994 amid allegations that the company inflated earnings.
The plea brings to a close the criminal side to one of the government's first prosecutions of a publicly traded company accused of "managing" its earnings to meet Wall Street expectations.
By admitting to one count of securities fraud, Cheramy, 55, faces up to 10 months in prison and a $250,000 fine at a sentencing hearing Sept. 27, said Assistant U.S. Atty. Jon Cederberg.
A federal grand jury indicted Cheramy and his then-partner, Jeffrey P. Sudikoff, in December 1997 on 19 counts of securities fraud and insider trading. Sudikoff, former owner of the Los Angeles Kings hockey team, pleaded guilty earlier this year to two counts of insider trading, agreeing to pay a $3-million fine. He faces 12 to 18 months in jail at a sentencing hearing scheduled for August.
Both sides declared victory Friday.
"Mr. Cheramy admitted today that when he spoke to investors, he didn't tell the truth," Cederberg said.
Cheramy's attorney said his client was vindicated by the settlement, noting that the original indictment included 10 counts of fraud.
IDB Communications was once a rising telecommunications and global satellite company, adored by Wall Street and considered on its way to becoming the next AT&T or MCI. With 900 employees worldwide, the Culver City-based company's clients ranged from MTV to the White House.
But in early 1994, the company came crashing to Earth when it appeared that it would miss analysts' earnings targets. Sudikoff, IDB's chief executive, and Cheramy, its president, allegedly fabricated a $5-million equipment lease in order to boost revenue 60%, the government said.
The company's accountant, Deloitte & Touche, resigned in protest, sending IDB's stock tumbling and spurring a criminal probe.