By DANIEL TAUB
Staff Reporter
Jeffrey Sudikoff had what it takes insatiable drive, an ability to see business possibilities where others saw none, and smarts to spare.
He used those entrepreneurial strengths to parlay a $15,000 car loan into one of Southern California’s fastest growing public companies, IDB Communications Group Inc. not to mention partial ownership of the Los Angeles Kings and a personal fortune estimated to be north of $200 million.
But the same drive that fueled Sudikoff’s meteoric rise may now land him in federal prison for a decade or more.
Sudikoff, 43, is set to stand trial in U.S. District Court next week on charges of securities fraud and insider trading at Culver City-based IDB, which he built into the nation’s fourth-largest long distance phone company.
He is accused of forging documents in 1994 so IDB could meet analysts’ expectations for quarterly earnings. While an extreme case, similar scenarios are being played out at fast-growing publicly held firms that get closely watched on Wall Street and where quarter-by-quarter financial results often determine whether the stock will soar or tank.
Companies increasingly are employing accounting gimmicks to meet these quarterly expectations, which has made fuzzy the line between creative accounting and outright fraud the type Sudikoff is accused of committing.
Sudikoff is charged with succumbing to Wall Street pressure by doctoring letters from a customer to indicate that a pending deal had closed, then filing fraudulent quarterly earnings reports with the Securities and Exchange Commission. He is also charged with illegally selling his IDB stock while having inside information about his company’s problems, and failing to inform the SEC about the stock sales.
According to the indictment, he and IDB President Edward Cheramy carried out the illegal activity in the first half of 1994 when IDB was at its height.
Since being indicted in December 1997, Sudikoff, who denies all charges, has maintained a low profile. He declined to comment for this article, but sources close to him said he is involved in various telecommunications and aviation businesses, including an airplane leasing company, and that his base of operations is in Santa Monica.
He lives with his wife and two daughters, ages 7 and 9, in a Brentwood mansion that he had built in the first half of 1994.
Cheramy, 55, is retired and lives in Jackson Hole, Wyo. with his wife. Through his lawyer, Cheramy declined to be interviewed for this story.
The attorneys representing both Sudikoff and Cheramy declined to speak in-depth about the case, but say they will fight the charges against their clients.
“Mr. Sudikoff denies each of the charges and intends to vigorously contest them in trial,” said Sudikoff’s attorney Brad D. Brian of Munger Tolles & Olson.
Similarly, Cheramy’s attorney, Gordon Greenberg of Sheppard Mullin Richter & Hampton, said, “We’ll do all of our talking in court. We’re disputing all of it.”
According to the indictment, IDB finished out the first quarter of 1994 with just $3.2 million in pretax income, far short of the $14 million-plus that analysts were projecting.
But just days later, around April 15, IDB utilized “various accounting ‘adjustments’ to fill the gap,” the indictment states, boosting that quarterly figure to about $15.1 million.
Then, Sudikoff and Cheramy allegedly told a Merrill Lynch analyst that IDB would meet first-quarter expectations. The analyst issued a “buy” recommendation on IDB stock.
In late April, an auditor at Deloitte & Touche, IDB’s outside accounting firm, said she could not stand behind the quarterly results, according to the indictment. Over her objections, IDB issued a press release proclaiming it had “record revenue and earnings” for the quarter.
In trying to explain IDB’s first-quarter earnings to Deloitte, the indictment states that Cheramy told Deloitte that it had leased satellite transponder space to British Telecom. “In fact, as of May 18, 1994, no such sale had taken place,” the indictment states.
To back up the purported sale, prosecutors charge that Sudikoff doctored a British Telecom letter to make it seem like $5 million worth of transponder space had been leased to the company. He then directed an employee to prepare three more fraudulent letters backing up the purported deal, and then faxed them to Deloitte.
“As defendant Sudikoff then knew, these three letters were false and fraudulent in that, among other things, there was no agreement for the sale of the satellite transponder leases, and the letters were not prepared or signed by the purported author of the letters, nor were they on genuine British Telecom letterhead,” the indictment states.
IDB then filed its quarterly earnings report with the SEC, and Deloitte quit as IDB’s independent auditor the same day.
On the first trading day after Deloitte’s resignation was disclosed, IDB stock fell from $14.50 to $7.13, meaning the company lost more than half its value.
According to the indictment, Sudikoff and his parents bailed out of much of his own IDB stock before the selloff. Sudikoff “knowingly and willfully concealed and caused concealment of his sale of 88,000 shares of IDB stock from investors, stock market analysts and the Securities and Exchange Commission in order to avoid affecting adversely the price of IDB stock,” court records state.
Sudikoff allegedly sold off millions of dollars in IDB stock by creating offshore companies and bank accounts, and transferring funds between them. Sudikoff is charged with failing to notify the SEC of his sale, as required by law. He also is said to have tipped off his parents, who sold thousands of IDB shares prior to the downturn.
After Deloitte’s resignation, the SEC began to investigate.
Sudikoff ended up selling IDB in August 1994 to long-distance phone company LDDS Communications in a stock swap worth $700 million a price institutional investors complained at the time was too low. The company is now part of MCI Worldcom Inc., in which Sudikoff remains a stockholder.
Sudikoff’s career started out on a slow trajectory. After a short stint as a radio reporter in Jerusalem, he returned to the U.S. in 1978 and got a job doing administrative work for music tours.
In 1983, he was asked if he knew how to broadcast a three-day rock concert live to radio stations around the country. He didn’t, but he saw his opportunity to crack into broadcasting, and told the concert’s organizers he could do the job.
Sudikoff took out a $15,000 loan and bought a mobile transmissions truck to beam the concert to a satellite. Word spread around about his capabilities, and he was hired to broadcast other events. Within a year, his company had grown from one man with a truck to a 15-employee company with three trucks.
In May 1986, Sudikoff hired Edward Cheramy, then head of Price Waterhouse’s entrepreneurial consulting business, and the two took the company public later that year. International financier George Soros at one point held a 7-percent stake in IDB.
IDB quickly parlayed its success in the field of satellite radio transmissions into television transmissions. Such historical events as the 1984 Summer Olympics in L.A., a 1988 summit between President Reagan and the USSR’s Mikhail Gorbachev, and the war in the Persian Gulf all were transmitted by IDB.
In 1990, Sudikoff told Forbes magazine, “This is the most fun I’ve ever had.”
By the middle of 1990, however, business started dropping off as the United States slipped into a recession and television networks scaled back their coverage of live events. IDB’s long-term debt had also grown to more than $90 million by mid-year.
Sudikoff and Cheramy saw the need to break into more profitable markets, which led them to the international long-distance telephone business. IDB started establishing ties with governments in Israel, Russia, China and other countries. After scooping up smaller competitors, IDB in 1993 became the fourth-largest international long-distance company in the nation, behind AT & T; Corp., MCI and Sprint Corp.
Also that year, Sudikoff was selected as “Entrepreneur of the Year” by Merrill Lynch & Co. and Ernst & Young LLP. And in March 1994, Fortune magazine called him one of “America’s Smart Young Entrepreneurs.”
Sudikoff’s trial is set to begin Feb. 23, Cheramy’s trial starts on June 22.
