Adelphia Communications, the ailing US cable business, has cancelled plans to pay a $4.2m severance package to John Rigas, its founder and former chief executive officer, who is facing criminal charges for fraud.
The decision, which will help speed the company’s emergence from Chapter 11 bankruptcy protection, comes as executive compensation is thrust into the spotlight in the wake of US accounting scandals at WorldCom and Enron.
At the end of May, Adelphia agreed to the annual severance payments of $1.4m for three years when Mr Rigas and three of his sons resigned from the company’s board. Their departure followed revelations that the company’s finances had been undermined by $3.1bn in off-balance-sheet loans to partnerships controlled by the Rigas family.
In July, Mr Rigas and his sons Timothy and Michael were arrested in New York and charged with seven counts of fraud. The arraignment accused the defendants of using Adelphia funds as “the Rigas family’s personal piggy bank”.
Adelphia then filed lawsuits against the Rigases, accusing them of racketeering, and cancelled the severance package, citing a clause that terminates the agreement should Mr Rigas be convicted of a felony.
“It is just another series of steps the company is taking to protect its assets,” said a person close to the decision.
Adelphia, which Mr Rigas built into the sixth-largest US cable group during 50 years at the helm, filed for Chapter 11 bankruptcy protection in June with $20bn in debt. The company agreed to an additional $1.5bn in loans, enabling the business to continue to operate as it sorts out its finances.
Adelphia declined to comment on Wednesday about the end of Mr Rigas’s severance package. However, the company asked a federal bankruptcy judge to prevent the Rigases from selling properties it claimed were purchased with corporate funds.
Peter Fleming, Mr Rigas’s defence lawyer at New York law firm Curtis, Mallet-Prevost, Colt and Mosle said: “It’s more than disturbing when anyone, including a corporate board, would decide to breach a contract presumably signed in good faith.”
On Tuesday, the board of WorldCom discussed withdrawing the severance package for Bernie Ebbers, its ousted chief executive, who had been awarded annual payments of $1.5m for life and personal use of the corporate jet. The company said it had not reached a decision on the matter.
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