Focus Is on Syndicated Loans in Adelphia Case

Morgan Stanley & Co. analyst Richard Bilotti testified Thursday that Adelphia Communications Corp.’s former finance chief Timothy Rigas failed to disclose that his family tapped bank loans backed by the company to buy securities.

Bilotti testified at the fraud trial of Adelphia founder John Rigas, 79, and two of his sons, Michael, 50, and Timothy, 47, who are accused of hiding $2.3 billion in borrowings by the family that the company guaranteed. Prosecutors say investors were hurt because Adelphia never said before March 27, 2002, how much the family borrowed under the syndicated bank loans.

Adelphia should have revealed in Securities and Exchange Commission filings the amount of company-backed borrowings by the Rigases to buy stock and debt to lower Adelphia leverage, prosecutors say. Bilotti said he asked Timothy Rigas in the fall of 2001 how the family financed its purchases.

The younger Rigas said the family used a “relatively immaterial” amount of margin loans to buy the securities, Bilotti told federal jurors in New York. When asked how the family paid for the balance, Rigas said it used “private assets and sources of funds” for the remainder, Bilotti said.

Bilotti said he didn’t specifically ask Rigas whether the family used the syndicated loans because “the SEC documents had, in my opinion, my understanding, my judgment, made it clear they had not been used.” He said he knew the loans existed without knowing how much the family drew.

Shares of Adelphia, the No. 5 cable television company, began to plummet after the company’s disclosure in March 2002 that the Rigases had borrowed $2.3 billion under the loans, and that some of that had gone to fund family securities purchases. Adelphia filed for bankruptcy protection in June 2002.

Bilotti, the head of cable and entertainment company research at Morgan, said he assumed that the Rigases used “cash or cash equivalents” to buy the securities. He defined cash equivalents as “readily marketable securities.”

Prosecutors introduced Bilotti research reports saying that the Rigas securities purchases helped lower Adelphia debt that grew from $3.5 billion in 1999 to $12.6 billion in 2002. Bilotti said the company’s debt load was one of the factors in his upgrading of the stock in November 2001.

Before testimony began, Judge Leonard Sand refused a request by an attorney for John Rigas to dismiss the case on grounds that prosecutors had let a witness mislead jurors. Peter Fleming argued that prosecutors failed to flag an error during direct testimony last month by director Dennis J. Coyle about the syndicated loan agreements.

Fleming said the error, which prosecutors discovered on Coyle’s seventh day of testimony and had him correct, “irretrievably poisoned” the jury. Sand said the foul-up didn’t warrant dismissal of the indictment or the bank fraud counts.