Adelphia Communications founder John Rigas, 77, was led away in handcuffs Wednesday as federal officials accused him and two of his sons — Timothy and Michael — with conspiring to use the No. 6 cable company as a “personal piggy bank.” The Rigases, arrested in New York, were charged with securities, wire and bank fraud. Also charged were two former executives, James Brown and Michael Mulcahey, who were picked up near Adelphia’s headquarters in the remote town of Coudersport, Pa.
John Rigas is the first major CEO to be arrested in the growing number of recent financial scandals.
Officials say that the Rigases organized elaborate ploys to hide the family-controlled company’s weakening financial condition. At the same time, they tapped its funds to subsidize their extravagant lifestyles.
“The scheme charged in the complaint is one of the largest and most egregious frauds ever perpetrated on investors and creditors,” Manhattan U.S. Attorney James Comey says.
In addition to the criminal complaint, the Securities and Exchange Commission filed a civil suit in U.S. District Court. The defendants could face jail time in the criminal case. The SEC wants them to pay restitution and fines, and would bar them from serving another publicly owned company.
The cases build on information that began to come out in late March. Adelphia disclosed then that the Rigases had used assets of the already debt-heavy company to secure loans to private, family-run partnerships. That borrowing is now put at $3.1 billion.
Last month Adelphia filed for bankruptcy protection after lenders lost confidence in the company and it missed several interest and dividend payments.
Among the latest charges, the Rigases began using Adelphia as collateral for their private loans in 1996, even though the company “was one of the largest junk bond issuers in the United States.” The Rigases hid the full extent of the company’s problems by inflating their cable TV subscription count. In 2000 they began to include subscribers from systems in Brazil and Venezuela where Adelphia owns a minority stake. In 2001 Adelphia began to count customers who just ordered high-speed Internet services from non-Adelphia systems owned by the Rigases. And earlier this year they folded in people who ordered home security services from Adelphia.
The charges also say they used accounting legerdemain to disguise Adelphia’s actual expenses for digital decoder boxes. In 2001 the company said it sold 525,000 boxes for $101 million to an unaudited Rigas-owned company that doesn’t have any cable systems.
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