Adelphia’s Founders to Forfeit Assets
The founding family of Adelphia Communications Corp. agreed Monday to forfeit $1.5 billion in assets to settle sweeping federal fraud charges stemming from accounting shenanigans that cost investors billions of dollars and forced the nation’s fifth-largest cable provider into bankruptcy.
Under Monday’s settlement -- one of the largest of the corporate scandal era -- with the Securities and Exchange Commission and the Justice Department, members of the Rigas family will give up substantially all of their assets in Adelphia. Those family holdings include separately owned cable systems with 215,000 subscribers worth as much as $900 million, $567 million in securities and $10 million in real estate.
“This represents the largest forfeiture ever made by individuals in a corporate fraud matter,” U.S. Atty. Gen. Alberto R. Gonzales said at a press briefing Monday.
Adelphia, Southern California’s largest cable operator, will pay the government $715 million to end federal criminal and civil investigations. That money will be disbursed as restitution to investors, but is a fraction of the more than $5 billion that Adelphia shareholders lost when the accounting scandal broke. Adelphia will keep assets valued at $762 million from the Rigas settlement.
Gonzales said Adelphia would not be prosecuted because the company was a “victim of its executives’ crimes,” had cooperated fully in the investigation and had acted quickly to oust the Rigases once the accounting problems surfaced.
Family patriarch John Rigas, 80, and his son Timothy, 48, were convicted last summer of conspiracy and securities fraud for looting Adelphia and misleading investors.
Authorities accused the Rigases of using the publicly traded cable company as a family piggy bank to finance personal luxuries such as jet trips, cars and golf club memberships. One allegation involved buying a $25-million swath of woodland to preserve the view from John Rigas’ home.
Prosecutors said the two also hoodwinked banks to obtain large personal loans and used phony accounting to conceal $2.3 billion of debt from investors. They also made false public statements to mislead investors about the damage their looting was causing the company.
John and Timothy Rigas now face as much as 215 years combined in prison and are scheduled to be sentenced June 1. A second son, Michael Rigas, is facing a new trial after a jury deadlocked last year.
As part of the settlement, other members of the Rigas family will retain two small cable systems in their hometown of Coudersport, Pa., and nearby Emporium. Those systems, which serve about 5,000 subscribers and are worth less than $10 million, were purchased by John Rigas before he formed Adelphia in the 1970s.
The settlement is the latest to be reached by the government from a spate of corporate accounting fraud cases it has filed in recent years.
This year, insurance giant Marsh & McLennan Cos. agreed to pay $850 million to settle charges by New York Atty. Gen. Eliot Spitzer that it cheated clients by rigging insurance bids and taking kickbacks. Other big settlements include WorldCom Inc., now MCI Inc., which agreed to pay $750 million to settle corporate accounting fraud charges, and Time Warner Inc., which agreed to pay $510 million to settle charges of accounting fraud at its America Online unit.
Monday’s settlement clears a potential hurdle to the sale of Adelphia. Last week, the nation’s two largest providers -- Time Warner and Comcast Corp. -- agreed to acquire Adelphia, which has some 5.2 million subscribers, for about $17.6 billion in cash and stock pending approval of the deal by creditors, regulators and the U.S. Bankruptcy Court judge. Adelphia filed for Chapter 11 bankruptcy protection in 2002 as its accounting scandal was mushrooming.
Adelphia entered the Los Angeles market in 1999 with its purchase of Century Communications Corp. and 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 settlement “should make it easier for the bankruptcy judge because it clears up the lingering question of who is responsible for these liabilities,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co., a Wall Street research firm. “It closes the book on a bad chapter for the cable industry.”
The settlement is the latest chapter in the downfall of the Rigas family, which stunned the tiny western Pennsylvania town where they lived and kept Adelphia’s headquarters.
John Rigas, the son of Greek immigrants, prided himself on providing 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.
In the wake of disclosures of accounting irregularities and charges of corporate looting, Adelphia’s board fired Rigas and the sons who worked for him.
New top management, including former AT&T; Broadband chief William Schleyer, now run the company. As part of their actions, they moved the company’s headquarters to Greenwood Village, Colo., saying it was difficult to attract executive talent to Coudersport.