Ex-Employee Tells of Lies at Adelphia

Former Adelphia Communications Corp. finance chief Timothy Rigas lied to investors about company debt, subscriber growth and upgrade of cable television lines, a former director of investor relations at the company testified Monday.

Karen Chrosniak said at the fraud trial of Adelphia founder John Rigas and two of his sons, Michael and Timothy, that Timothy Rigas ordered that 60,000 customers of Adelphia’s home security business be falsely counted as basic cable subscribers.

She said Adelphia understated debt and overstated its subscribers and upgrade because it didn’t meet Wall Street analysts’ expectations before the company’s bankruptcy filing in June 2002. Chrosniak said she knew it was wrong to prepare news releases and investor materials with phony numbers.

“I didn’t want to confront Tim,” Chrosniak told federal jurors in New York.

Prosecutors claim that the Rigases hid $2.3 billion in debt at Adelphia, stole $100 million and lied about revenue and operations. They say the Rigases caused Adelphia, the No. 5 U.S. cable television operator, to pay $252 million to satisfy margin calls by four lenders, beginning as early as 2001. The Rigases secured those loans with shares of Adelphia stock.

Chrosniak, 36, also said she received inquiries from investors in 2001 and 2002 about margin loans and the stock price at which lenders would call the loans. She said Timothy Rigas told investors in May 2001 that the family had $190 million to $250 million in such loans and that the price was “much lower than where Adelphia’s stock price was currently trading.”

Rigas said the range for margin calls was $12 to $15 a share at a time when the stock was about $40, according to Chrosniak.

Chrosniak maintained that line to investors into early 2002 as she “adamantly denied” any margin calls.

She said she didn’t learn about actual margin calls until late April 2002, when she heard Assistant Treasurer Michael Mulcahey tell Rigas that Deutsche Bank called a loan. Rigas told Mulcahey to “go ahead and pay it.” Prosecutors say Adelphia paid $50 million in margin loans to Deutsche Bank.

The Rigases and Mulcahey, 46, are charged with conspiracy, securities fraud, wire fraud and bank fraud.

Chrosniak testified last week that the company’s basic cable subscriber count improperly included 28,000 customers in Venezuela and about 15,000 in Brazil, as well as 39,000 who had only high-speed Internet service. Adelphia held only minority interests in the South American companies and couldn’t properly report those customers as its own, she testified.

Chrosniak is helping prosecutors, who agreed not to charge her in return for her testimony. Her ex-husband, Tim Werth, Adelphia’s former director of accounting, pleaded guilty to fraud and will testify as a government witness.

Chrosniak said she conspired with James Brown, a former finance vice president, who also pleaded guilty and is helping prosecutors.