Adelphia Communications Corp. is refusing to pay former chief executive John Rigas millions of dollars in severance benefits, citing the federal fraud charges against the cable company’s founder, according to a source briefed on the situation.
Rigas, who founded the Pennsylvania-based cable television company in 1952, was forced to step down in May after the company revealed that he and other members of his family had used more than $200 million in company money to cover family stock losses.
Adelphia, which serves more than 5 million cable subscribers, including about 85,000 in the Washington area, filed for bankruptcy protection in June, citing debts of more than $20 billion. It also disclosed more than $3 billion in loans to the Rigas family members or entities they controlled.
According to the severance agreement signed by Rigas in May, he is entitled to a payment of $1.4 million a year for three years, plus health benefits, access to an office with secretarial support and emergency use of corporate aircraft.
Rigas’s agreement includes a provision that terminates all severance payments if he is convicted of a felony. But Rigas’s attorney said yesterday the deal is being broken by the company’s failure to make payments due to his client. “They have obviously breached the agreement,” lawyer Stephen J. Harmelin said yesterday.
It was after the Rigases were arrested and formally charged in July that Adelphia decided against making the severance payments, a source close to the company said yesterday.
Adelphia is not alone in its decision to revisit separation agreements with former executives. WorldCom Inc., the long-distance telephone and data networking company, delayed making any severance payments to its founder and former chief executive, Bernard J. Ebbers.
Like Adelphia, WorldCom has filed for bankruptcy protection. Federal stock regulators have charged WorldCom with securities fraud.
Ebbers, who has not been charged, was forced out of WorldCom in April when it was revealed that he had borrowed $408.2 million from the company to cover personal stock losses.
Ebbers’s agreement provided that he would be paid $1.5 million a year for five years, along with other benefits, including the use of an office and secretarial services. During a board meeting in Washington this week, WorldCom’s directors considered revoking the severance package in its entirety.
It is not unusual for companies that have filed for bankruptcy protection to postpone or even fail to pay out severance, according to Edward Soule, a professor of business ethics at Georgetown University. But in most cases, the severance is not paid simply because the company lacks the money to make the payments, he said. The difference in the Adelphia and WorldCom cases is that the executives’ personal conduct has come under investigation.
In reaction to Adelphia’s action, Rigas has refused to put family stock, as required by the severance package, in a trust pending the outcome of internal investigations, attorney Harmelin said. Shares of Adelphia closed yesterday at 14 cents, down from a 52-week high of $33.05.
Rigas was arrested in July along with two of his sons who were also high-level executives at the company. Prosecutors charged the Rigases with defrauding investors out of billions of dollars and misleading investors about the financial condition of the company. They also accused family members of using the company as a “personal piggy bank” to finance stock purchases, construction of a private golf course and family trips to Africa.
John Rigas and his sons, Michael and Timothy, were released after they each posted a $10 million bond secured by cash and mortgages on their personal property.