Adelphia Business Solutions Inc. said its audit committee has asked outside counsel to conduct an independent investigation into related-party transactions and agreements between the company, its former parent Adelphia Communications Corp. and the Rigas family, which founded and until recently ran the companies.
The audit committee also asked counsel to determine if Adelphia Business or any of its officers or directors have engaged in illegal conduct, the communications services provider said in a Form 8-K filed late Thursday with the Securities and Exchange Commission.
Also in the SEC filing, Adelphia Business attached a letter from its former auditor Deloitte & Touche LLP in which Deloitte said it disagreed with Adelphia Business’ claim that there were no reportable events to disclose within the meaning of item 304(a)(1)(v) of Regulation S-K for 2000 and 2001.
Adelphia Business, which was spun off from Adelphia Communications in January, made the claim in SEC filings reporting the circumstances of Deloitte’s resignation.
In the letter, Deloitte said that Adelphia Business had received proceeds under a co-borrowing agreement through another unit of Adelphia Communications. Under the co-borrowing agreements, certain of Adelphia Communications’ units were co-borrowers with other entities under the common control and management of the Rigas family.
Deloitte — which had also been Adelphia Communications’ auditor until June — had expanded its audit of Adelphia Communications to look into these agreements.
Deloitte said the issues had arisen because of certain disclosures regarding the use of the borrowed funds and whether the use of funds suggested they should be reflected in the financial statements of Adelphia Communications and its subsidiaries that were parties to the co-borrowing agreements.
Deloitte said that on April 5, it informed an Adelphia Business executive that these issues would need to be resolved before it would be in a position to issue a report on the company’s 2001 consolidated financial statements. It also said it discussed accounting and audit matters with officers and directors of Adelphia Communications, including ones who were also officers and directors at Adelphia Business through June 4.
Adelphia Business said in the SEC filing that it presumes Deloitte is referring to members of the Rigas family. The company said the Rigas family didn’t provide it with information about these discussions.
As reported, both Adelphia Business and Adelphia Communications are operating under Chapter 11.
The Rigas family resigned from board and officer positions at Adelphia Communications in May amidst an accounting scandal relating to the off-balance sheet loans. The Rigas family is also expected to resign from Adelphia Business’ board.