Low View of Adelphia’s High Life

Early last year cable mogul John Rigas allegedly was taking so much money from Adelphia Communications Corp. that his son Tim Rigas, the company’s chief financial officer, had to put on the brakes.

Tim notified Michael Mulcahey, Adelphia’s finance executive in charge of the company’s cash, that he must approve any further requests by his father beyond a $1-million-a-month limit. Over the next year, $12 million--paid in increments of about $1 million a month--was wired from Adelphia to John Rigas’ personal account at Bank of New York, according to court documents.

As far as Adelphia shareholders knew, John Rigas was paid about $1.9 million a year. They were not told about the additional payments, as required by law, according to a criminal lawsuit filed this week by the Justice Department against five former Adelphia executives, including John and Tim Rigas and Mulcahey.

The payments were part of a widespread pattern of deceit alleged in the federal case and a related civil complaint filed Wednesday that accuse the executives of improperly using corporate funds for personal enrichment, charging them with several counts of mail, wire and securities fraud.

The Rigases doctored financial records at Adelphia and created sham transactions and phony companies to inflate the firm’s earnings and to conceal its mounting debts, the suits allege. Adelphia is the nation’s sixth-biggest cable TV operator and the largest in Southern California.

Peter Fleming, a lawyer for the Rigases, said he would challenge allegations that the family was using Adelphia’s money for personal transactions.

It is unclear from the complaints precisely what Rigas was buying with his alleged $1-million-a-month allowance. But since he founded Adelphia in 1952 in the sleepy outpost of Coudersport in rural Pennsylvania, this son of Greek immigrants who grew up above his family’s hot-dog joint has upgraded his lifestyle significantly.

The family routinely stayed at vacation homes in Cancun, Mexico; Beaver Creek, Colo.; and Hilton Head, S.C., as well as two luxury apartments on the Upper East Side of Manhattan. Three private jets in the only hangar at the airport near the company’s headquarters whisked Tim and his friends to an African safari or to a castle in the south of France.

A $700,000 membership at a luxury country club is said to have kept Tim well-practiced in his favorite hobby, golf. He also was busy overseeing construction of a world-class 18-hole course on the outskirts of Coudersport for visiting cable TV dignitaries and top executives of Adelphia. Tim said it would make it easier to recruit top executives to the hamlet, a five-hour drive from the nearest major airport, in Buffalo.

Adelphia’s shareholders paid for many of these family perks, according to court documents.

Intermingled Finances

Federal authorities allege that the fraud cost Adelphia shareholders nearly $6 billion in lost value since late March, when the company’s stock plunged after the Rigases disclosed they had taken out $2.3 billion in personal loans backed by the cable giant. In May the Rigases relinquished control of the company, and last month Adelphia filed for Chapter 11 bankruptcy protection because of a cash crisis.

John Rigas and two of his sons, Tim and Michael, were arraigned and each released on $10-million bail Wednesday. Mulcahey and another former corporate officer, James Brown, also were released, without bail.

In the two lawsuits, authorities described how the Rigases allegedly used Adelphia as their personal cash register: Revenues from Adelphia subsidiaries and the scores of businesses owned by the Rigas family were dumped into one central account. Bills then were paid out of the same account, an accounting no-no.

“Although the financial affairs of Adelphia and the Rigas Family Entities were intermingled ... the financial results of the Rigas Family Entities were not consolidated or combined with Adelphia’s on Adelphia’s financial statements,” the Justice Department complaint said.

The Rigases also drew money out of Adelphia through many of their privately owned firms. A car dealership owned by John Rigas leased some of the vehicles in Adelphia’s corporate fleet. An interior decorating shop run by his wife, Doris, sold furniture and design services to Adelphia. A farm owned by John supplied landscaping, snow removal and other maintenance services to Adelphia. And the Buffalo Sabres hockey team, owned by the family, sold hundreds of tickets every year to Adelphia.

Distributing Largess

In Coudersport, John Rigas was widely considered a hometown hero. He espoused conservative values and prevented Adelphia from carrying sex-oriented channels on its cable systems.

Townsfolk looked upon Rigas as something of a Santa Claus because he shared Adelphia’s wealth. He gave out Sabres tickets to employees, he sent his trucks into town to plow residents’ driveways during snowstorms, he ferried ailing locals to medical treatments by car and plane. Adelphia’s shareholders appear to have picked up at least part of the tab, according to court records.

Over the years, John Rigas’ practice of buying land from destitute farmers put 10,000 acres into his hands. The land produced Christmas trees, maple syrup, sunflowers and other crops. Also on the farm was a one-hole golf course and the tasteful stone Rigas homestead, where John and Doris live with sons Tim and Michael.

Tim had grand plans to turn 661 acres of the farmland, at the headwaters of the Allegheny and Susquehanna rivers, into a golf course designed by the renowned Robert Trent Jones Jr. Locals saw the development as a symbol of Tim’s arrogance. There already was one local public golf course; the area didn’t need two, to their thinking. Yet after fighting off the critics, including environmentalists who worried about pesticide runoff into the trout-filled rivers, the Rigases broke ground on the course in March 2000.

According to the criminal lawsuits, the Rigases used $13 million of Adelphia’s money and 169 acres of company-owned land for the project but never disclosed it to shareholders or asked for board approval.

The bulldozers came to a halt several months ago, and heavy rains began washing the sculpted mounds of soil into the rivers. The project lies idle, with $40 million needed for completion.

The Rigases’ dreams began to collapse in March, when the company revealed in a footnote in its 2001 financial results that the family had borrowed $2.3 billion, guaranteed by Adelphia. (The criminal complaint said the company failed to disclose similar loans to the family of more than $1 billion the previous year.)

In a conference call with Wall Street analysts, Merrill Lynch & Co.’s Oren Cohen asked for a clarification of the loans, drawing attention to Adelphia’s surprising new debt. In the aftermath of the Enron Corp. accounting scandal only a few months earlier, investors began bailing out of Adelphia’s stock, which plunged 18% on the news. Within three months, it was worth only pennies a share.

In recent years, as Adelphia issued more shares to pay down debt, the Rigases gave Wall Street the appearance of support by purchasing large amounts of stock. What shareholders did not realize was that the Rigases were buying those shares with loans backed by Adelphia, thereby piling up debt in off-balance-sheet partnerships, according to court records.

Some of the family’s loans were guaranteed with Adelphia stock, and when the shares dropped in value, the Rigases’ lenders forced them to put up cash as collateral in so-called margin calls.

This spring, as Adelphia was assuring investors and regulators that it was working out debt problems, the Rigases secretly diverted $174 million from corporate accounts to meet lenders’ margin calls, court documents said. This brought to $252 million the amount of Adelphia funds used by the Rigases to pay for 65 margin calls by their lenders, according to the criminal suit.

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Adelphia’s Missing Money

The Justice Department and the Securities and Exchange Commission have filed charges of securities, bank and wire fraud against three members of the Rigas family and two former executives of Adelphia Communications Corp. Among the allegations:

* $12.8 million in Adelphia funds was used for the construction of a golf course on 830 acres of land mostly owned by the Rigases and was not disclosed to Adelphia investors.

* $252 million was paid by Adelphia to cover personal margin loans and other debts of the Rigas family and was not reported to Adelphia shareholders.

* The Rigases had exclusive use of luxury condominiums in Colorado, Mexico and New York that were paid for by Adelphia without being disclosed to investors.

Source: Times research

* The daughter and son-in-law of founder John Rigas had exclusive use of two New York apartments rent-free for four years. The use of the apartments, whose rental value was at least $150,000, is not disclosed to the public.

* John Rigas spent large amounts of Adelphia funds. From early 2001 to early 2002, he received cash payments of about $1 million a month from Adelphia to his personal account at Bank of New York.

During this time, Adelphia falsely reported that John Rigas’ total compensation for 2000 was less than $1.9 million.

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Source: Times research