Three members of the Rigas family, which controlled Adelphia Communications Corp. for 50 years, were indicted yesterday on charges of conspiring to defraud investors out of more than $250 million and failing to disclose $2.3 billion in loans to the family.
The 24-count indictment handed up by a Manhattan grand jury charges the cable television company’s founder, John J. Rigas, two of his sons and two other executives with conspiracy, securities fraud, wire fraud and bank fraud. Prosecutors say the scheme began in 1999 and did not end until May of this year, when the Rigases and the other executives were forced to resign.
The company filed for bankruptcy protection in June.
John Rigas’s two sons, Timothy J. Rigas and Michael J. Rigas, were senior executives and Adelphia board members. Also indicted were James R. Brown, former vice president for finance, and Michael C. Mulcahey, former director of internal reporting. All five men were arrested in July and released on bond.
John Rigas, who has kept a low profile since he was forced to resign in May, issued a statement defending himself and his family name. “My family and I have always acted with integrity and honesty and are committed to restoring our credibility and that of Adelphia,” the statement said.
The indictments are the latest in a series of high-profile moves by prosecutors against executives who have been accused of using their positions to defraud investors and use corporate funds to subsidize lavish lifestyles.
During the past several months, federal prosecutors have also arrested and charged former executives at WorldCom Inc., Tyco International Ltd. and ImClone Systems Inc., a biotechnology firm.
Among the charges filed against the Rigases is that they improperly used Adelphia funds to cover more than $250 million in personal stock losses. Prosecutors also allege that John Rigas failed to disclose receiving $13 million in corporate funds to build a golf course on land he owned. Rigas family members also lived in Adelphia-owned Manhattan apartments and freely used corporate jets without reimbursing the company.
In addition to the use of corporate funds for private expenses, prosecutors have alleged that the Rigases and the other Adelphia executives conspired to make misleading statements to investors, lenders and analysts in an effort to hide the company’s failing financial condition. The indictment also says that Adelphia’s board agreed to sell $400 million worth of company securities to the Rigases in an effort to reduce the company’s ballooning debt, but the family never paid for the stock after it was transferred.
“The Rigas defendants and their co-conspirators exploited Adelphia’s byzantine corporate and financial structure to create a towering facade of false success even as Adelphia was collapsing under the weight of its staggering debt burden and the defendants’ failing management of the company, and the Rigas Family lined their pockets with shareholder dollars,” James B. Comey, U.S. attorney for the Southern District of New York, said in a statement.
The indictment focuses on a “co-borrowing” facility set up by the Rigases and Adelphia. Prosecutors alleged in the indictment that the company failed to disclose that it was liable for $2.3 billion borrowed by the Rigas family under the agreement.
In his statement yesterday, John Rigas said the co-borrowing agreements were “legal and proper.”
He said that the agreements involved some of the largest banks and that they were approved by Adelphia’s outside directors. In addition, Rigas contended that the loans were reviewed and signed off on by Adelphia’s outside auditors, Deloitte & Touche LLP. The accounting firm was fired by Adelphia in June.
John Rigas’s attorney, Peter Fleming, said the co-borrowing agreement was first disclosed in a footnote in the company’s 2000 financial statement filed with the Securities and Exchange Commission. Although the initial $3.7 billion financial agreement was disclosed in the footnote, the company did not report that the Rigas family had drawn any money from the credit facility.
The company did not mention the arrangement again in any statement until March, when it disclosed, in response to questions from analysts, that the Rigases had borrowed $2.3 billion under the agreement. By that time, the ceiling on borrowing from a syndicate of banks had increased to more than $5 billion.
Adelphia, which is still the nation’s sixth-largest cable company, issued a statement yesterday in which it highlighted the fact that the company is under new management.
“Today’s indictments will help further distance Adelphia from the wrongful conduct of the Rigas family and help advance the company’s efforts to recover the assets improperly taken from the Rigas family and certain associates.”
Separately, Adelphia has filed its own lawsuit accusing the Rigas family of violating the Racketeer Influenced and Corrupt Organizations Act. In addition, the company has sued family members, charging breach of fiduciary duty and self-dealing.
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