Cash Was Wired to Cover Rigas Loan, Broker Says

As Adelphia Communications Corp.’s stock price tanked in late 2001 and 2002, tens of millions of dollars in cash were wired to Smith Barney to cover the Rigas family’s margin loan, a broker testified Tuesday.

Highland Communications, a Rigas-owned entity, had a $100-million margin loan through Smith Barney, broker Richard Cavallaro testified in the fraud trial of former Adelphia Chairman John Rigas, two of his sons and a fourth former executive.

Asked whether it was Adelphia that paid the cash to boost the amount pledged as loan collateral, Cavallaro said he did not know. The government alleges the Rigases had Adelphia pay $252 million to satisfy margin calls on loans to the family.

Margin calls are made when the value of the stock backing a loan to buy securities has declined significantly, Cavallaro explained to the jury.

John, Michael and Timothy Rigas and former Adelphia Assistant Treasurer Michael Mulcahey are on trial in U.S. District Court in Manhattan on charges of conspiracy and fraud in an alleged scheme to loot Adelphia and mislead investors, creditors and the public.

Smith Barney corresponded with Adelphia’s Mulcahey rather than any member of the Rigas family in handling the margin loans, which were in the name of Highland Communications, Cavallaro said.

In May 2002, Smith Barney sold stock in the Highland Communications account to cover the loans after the family failed to completely satisfy margin calls, Cavallaro testified.