Adelphia Communications Corp. said Wednesday it is the subject of an informal inquiry by the Securities and Exchange Commission concerning off-the-book loans to partnerships controlled by its founders.
Adelphia disclosed $2.3 billion in off-balance-sheet debt last week, sending its stock price lower. Shares of the company have fallen more than 50 percent since March 26 when Wall Street first raised concerns about its financial dealings.
The company sold stock three months ago to a private partnership, which could have increased the $2.3 billion in debt that wasn’t on its books. Adelphia sold $400 million of convertible shares to Highland Holdings, which is owned by the Rigas family.
The Rigas family founded Adelphia in 1986 and continues to control the company. John J. Rigas is Adelphia’s chairman, president and chief executive officer.
The nation’s sixth-largest cable-television operator said the government is examining its “previously disclosed co-borrowing agreements” and that it has petitioned the company for clarification and related documents.
Based in Coudersport, Pa., Adelphia said it is cooperating with the investigation.
Karen Chrosniak, Adelphia’s director of investor relations, declined to comment.
“There are a number of things going on,” Kevin Kuzio, vice president with KDP Investment Advisors in Montpelier, Vt., told United Press International. “The SEC investigation is no surprise. But what the market is looking for is some kind of clarity regarding the final amount of these losses.”
Kuzio said investors were already concerned about the company’s $14.7 billion in debt, not including the $2.3 billion in off-balance-sheet debt.
Shares of Adelphia lost 79 cents, or 6.68 percent, to close Wednesday at $11.04 on extremely heavy volume of 48.2 million shares traded on the Nasdaq Stock Market. The stock was trading as low as $9.52. On average, Adelphia trades 7.1 million shares.
Adelphia stock was trading at $20.39 a share on March 26 prior to the loan disclosures.
Wachovia Securities on Wednesday downgraded Adelphia shares from a “buy” to “market perform.”
Investors have become nervous about off-balance sheet items since the collapse of energy trading company Enron Corp., whose off-balance-sheet deals allegedly hid debt and enhanced earnings.
On Monday, Adelphia asked the SEC for permission to delay the release of its annual report.
The disclosures have prompted several shareholder lawsuits to be filed Wednesday in the United States District Court for the East District of Pennsylvania.
The lawsuits charge Adelphia violated federal securities laws by issuing a series of false and false and misleading statements, concerning the company’s financial condition and business prospects.
In its suit, New York-based law firm Faruqi & Faruqi LLP, argued that these statements artificially inflated Adelphia’s stock price.
The Philadelphia-based law firms of Brian M. Felgosie and Berger & Montague, and Berman, DeValerio, Pease, Tabacco, along with Burt & Pucillo of Boston, have also filed lawsuits.
Along with Adelphia, the Rigas family has been named as a defendant in the lawsuits.
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