Adelphia Offers U.S. $725 Million
Potentially clearing the way for the sale of its cable systems, Adelphia Communications Corp. has offered to pay the federal government $725 million to resolve criminal and civil fraud actions against the company and its founder, a regulatory filing disclosed Thursday.
The settlement, if accepted by federal officials, would represent one of the largest in corporate history, just shy of the $750 million paid in 2003 by WorldCom Inc, now called MCI Inc., whose former chief executive, Bernard J. Ebbers, was convicted this month of securities fraud.
Adelphia -- Southern California’s largest cable operator -- said it was making the $725-million offer to settle civil charges brought in 2002 by the Securities and Exchange Commission and end an investigation by the Justice Department.
“Adelphia is engaged in constructive discussions with the government,” the company said in a statement, adding that “the terms of any settlement are still under discussion.”
In recent years, federal authorities have extracted a series of large penalties in connection with a spate of corporate scandals. In addition to WorldCom’s $750-million settlement, they include a $675-million settlement with Bank of America Corp. and Fleet Boston Financial Corp., which were charged with improper trading in mutual funds. This year, Marsh & McLennan Cos., an insurance conglomerate, agreed to pay $850 million to settle charges that it had rigged bids.
Adelphia, which is in Chapter 11 bankruptcy, has put itself on the block as a way to pay off creditors. Bidders have been eager for Adelphia to clear up its regulatory problems because they are unwilling to assume liabilities from a pending government investigation or lawsuit.
The company was forced to file for bankruptcy protection in 2002 after its stock lost billions of dollars in value in the wake of an accounting scandal and revelations that company founder John Rigas had used vast corporate sums for personal use. Rigas and his three sons, all top executives in the company, relinquished their roles.
Rigas, 80, and son Timothy, 48, were convicted in July of conspiracy and fraud for looting Adelphia and lying about its finances before the bankruptcy filing. They are scheduled to be sentenced in April.
Sources said this week that Adelphia was close to announcing a sale of the company to Time Warner Inc. and Comcast Corp. for slightly more than $17.5 billion.
In its statement Thursday, Adelphia said its earlier promise to decide by the end of March whether the company would be sold or would emerge independently from bankruptcy was a “goal,” not a “deadline.”
If the nation’s two largest cable operators prevail in their joint bid, as expected, Time Warner probably would become Los Angeles’ leading pay-TV provider. In dividing up Adelphia’s 5.2 million subscribers, the two partners have agreed that Time Warner would end up with the firm’s cable systems in L.A. and Orange counties, serving about 1.2 million customers. Comcast has agreed to contribute its own 500,000 subscribers in L.A. to Time Warner as part of the deal.
Also on Thursday, a Bankruptcy Court judge ruled that Rigas and his sons could access a portion of the $10 million they requested to pay defense costs in the criminal case and civil lawsuits.
The Rigas family asked the court to allow it to draw $10.2 million from 11 cable companies managed by Adelphia and owned by the family. Adelphia opposed the request, arguing that the frozen funds should be set aside for creditors. Judge Robert Gerber ruled that the Rigases could obtain funds from two of the 11 companies as long as the firms had enough cash and didn’t tap Adelphia’s funds.
Adelphia has argued that the Rigases have sufficient assets to pay for their own defense. Last year, the Rigases received $475,000 in insurance proceeds, $750,000 in proceeds from a hedge fund sale and $7.6 million from timber sales at a family-owned farm in Pennsylvania, according to court documents.
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Bloomberg News was used in compiling this report.
