Jury Convicts 2 in Adelphia Fraud Case

In a big win for corporate crime fighters, a New York federal jury Thursday convicted Adelphia Communications Corp. founder John J. Rigas and his son Timothy of looting the now-insolvent cable TV company and lying to investors about its finances.

The jury of seven women and five men found John Rigas, 79, and Timothy J. Rigas, 48, guilty of conspiracy, bank fraud and securities fraud after eight days of deliberations that followed a laborious 18-week trial. The two face prison terms of as many as 30 years.

In a partial verdict, the jury acquitted Michael J. Rigas, 50, another of John Rigas’ sons, of conspiracy and wire fraud but was undecided on charges of securities fraud and bank fraud. U.S. District Judge Leonard B. Sand directed the panel to resume deliberations on those charges today.

Former Adelphia finance executive Michael C. Mulcahey, 46, was found not guilty on all counts. Mulcahey was the only defendant to testify in his own defense and gave what was regarded as a strong performance during three days of cross-examination.

Adelphia is the nation’s fifth-largest cable TV provider and the biggest in Southern California, with more than 1.2 million customers. It entered the region’s market in 1999 with its purchase of Century Communications Corp. Adelphia soon stirred controversy among its customers by dropping the sexually explicit Spice channel from local offerings -- a move that reflected John Rigas’ distaste for such lascivious fare.

The Adelphia verdicts came on a day of major developments in two other corporate-corruption cases: Former Enron Corp. Chairman Kenneth L. Lay surrendered to the FBI in Houston after being indicted in connection with the 2001 collapse of the huge energy trading firm, and Martha Stewart was denied a new trial on her fraud and conspiracy conviction and will face sentencing next Friday.

The Rigases, hailing from tiny Coudersport, Pa., maintained lower profiles than Stewart or Lay, but their 23-count indictment was an inventory of the kinds of practices that have shaken investors’ faith during the recent epidemic of corporate scandals.

They were accused of using stockholder-owned Adelphia as a family piggy bank to finance such personal luxuries as jet trips, cars, golf-club memberships and a $25-million swath of woodland purchased -- prosecutors said -- to preserve the view from John Rigas’ home.

Prosecutors said they hoodwinked banks to obtain large personal loans, used phony accounting to conceal $2.3 billion of debt and made false public statements to mislead investors about the damage their looting was causing the company.

The late-afternoon verdicts took several minutes to read, as Judge Sand and the jury worked through a complex, 22-page verdict form.

John and Timothy Rigas were stony-faced as the guilty verdicts were read, although the elder man slumped lower in his chair and remained seated there for more than half an hour after the jury was sent home.

Michael Rigas appeared more emotional, as Adam Wasserman, one of his lawyers, put a hand on his shoulder.

Mulcahey and his wife, Cathy, shared a long, tearful embrace after the verdicts were announced.

U.S. Atty. David N. Kelley sat in the front row of the crowded Lower Manhattan courtroom to hear the verdicts, but he declined to comment afterward, noting that the jury would continue to deliberate on other charges. Chief prosecutor Richard D. Owens and his team also declined to comment.

None of the defendants would comment Thursday.

“It’s a bittersweet day, and we’ll see what happens tomorrow,” said Andrew J. Levander, Michael Rigas’ chief defense lawyer.

“Of course we’re disappointed,” said Timothy Rigas’ lawyer, Paul R. Grand. “We’re pleased for Michael Mulcahey but disappointed for Tim Rigas and hope we get a better result in another court,” he said, implying that he would file an appeal.

Peter E. Fleming Jr., John Rigas’ lawyer, declined to comment except to say: “We’ll be here tomorrow.”

Fleming, in his closing arguments, tried to portray Rigas as increasingly detached from the company he founded in 1952.

He said Rigas pulled back from day-to-day operations around 1999, when he underwent triple-bypass heart surgery and was diagnosed with bladder cancer.

Still, the jury apparently believed star prosecution witness James Brown, a former Adelphia accounting chief who pleaded guilty to fraud and whose testimony most directly implicated John Rigas, as chief executive, and Timothy Rigas, as chief financial officer.

Michael Rigas, Adelphia’s former head of operations, was portrayed in testimony as removed from the company’s financial and accounting affairs.

Mulcahey’s lawyer, Mark J. Mahoney, told reporters that the prospect of a long trial with an uncertain outcome led him to consider advising his client to plead guilty to a lesser crime, such as filing a false financial statement. However, prosecutors rebuffed his pretrial overtures without even a reply, he said.

Several lawyers who followed the case praised the jury for efficiently plowing through more than 1,000 exhibits and 1 million pages of documents presented during the trial.

“It was a stellar performance by the jury to set aside the color in the case and focus on the criminal conduct,” said Jacob S. Frenkel, a former Securities and Exchange Commission lawyer now in private practice. “They produced a near-bulletproof verdict.”

In woodsy Coudersport, where decades of good deeds made John Rigas a beloved figure, some residents were saddened Thursday.

“John is highly thought of,” said Jimmy Bruzzi, who owns a dry-cleaning business. “People are hurt because his side was never told.”

Rigas, the son of Greek immigrants, prided himself on providing decent jobs for college graduates who might otherwise leave Coudersport. Even his own three sons returned to town after graduating from some of the nation’s top colleges to take roles in the growing cable concern.

Donald R. Gilliland, managing editor of the Potter Leader-Enterprise, the weekly newspaper in Coudersport, said the trial changed some opinions in the area.

“Early in the trial people clung to the sense that the old man didn’t know,” Gilliland said. “But the mood changed in Coudersport when they found out the Rigases were not going to put up any defense. They figured, that’s it, they must be guilty.”

Adelphia filed for bankruptcy protection two years ago after its shares plunged in the wake of disclosures of accounting irregularities and the allegations of looting.

Adelphia’s board fired Rigas and his sons and brought in new management, including former AT&T; Broadband chief William Schleyer.

Soon after, the company moved its headquarters to Greenwood Village, Colo., saying that it was difficult to attract executive talent to such a rural town as Coudersport.

In April, Adelphia was put up for sale as part of a plan to emerge from bankruptcy reorganization this summer. The new management team filed a reorganization plan in U.S. Bankruptcy Court this year that valued the company at $17.9 billion.

Yet creditors and bondholders argued that Adelphia would fetch more in a sale. Some Wall Street analysts say the company could sell for $20 billion or more. Time Warner Inc., the nation’s second-largest cable TV operator, is considered the leading bidder.

However, potential suitors say the sale may not take place until next year because of the complications of bankruptcy.

“Adelphia’s situation remains very much up in the air,” Microsoft co-founder Paul Allen told reporters at an investment retreat Thursday in Sun Valley, Idaho. “People are saying it’s going to take a while.”

Allen, chairman of Charter Communications Corp., the nation’s third-largest cable operator, has been eager to add to his Los Angeles systems by buying local assets owned by Adelphia.

Mulligan reported from New York and Hofmeister from Sun Valley.

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(BEGIN TEXT OF INFOBOX)

The verdicts

A federal jury in Manhattan reached full verdicts on three defendants Thursday in the Adelphia Communications corporate fraud trial but remained undecided on the fourth defendant. The judge told jurors to return today for further instructions.

John J. Rigas, 79, founder, former chief executive and father of defendants Timothy and Michael Rigas, was found guilty of conspiracy, bank fraud and securities fraud.

* Timothy J. Rigas, 48, former chief financial officer, was found guilty of conspiracy, bank fraud and securities fraud.

* Michael C. Mulcahey, 46, former assistant treasurer, was found not guilty of conspiracy and securities fraud.

* Michael J. Rigas, 50, former executive vice president for operations, was found not guilty of conspiracy and wire fraud. The jury was undecided on securities fraud and bank fraud.

Source: Associated Press

Los Angeles Times