Commentary

Adelphia, and ex-CEO Rigas to settle fraud case. Rigas already facing 15 years in prison.

Adelphia Communications Corp. ("Adelphia") will pay approximately $715 million to settle ''one of the most extensive financial fraud ever to take place at a public company," according to a statement issued by the Securities and Exchange Commission.

Ex-CEO John Rigas along with his son Timothy (ex-CFO), will forfeit a total of $1.5 billion in assets to create a fund to compensate victims of ''one of the most extensive financial fraud ever to take place at a public company.'' Both were declared guilty of conspiracy, securities fraud and bank fraud in connection with their hiding more than $2.3 billion in debt at Adelphia, deceiving investors and using company funds for personal gain. Father and son are now facing 25 - 30 year prison sentences.

Another son, Michael Rigas, a former Vice President, was acquitted of conspiracy and wire fraud charges. He is however, facing a retrial on 17 counts of securities fraud and bank fraud on which the jury couldn't come to a verdict. In addition, former Adelphia assistant treasurer Michael Mulcahey was found not guilty of conspiracy and securities fraud.

The Rigas family, which founded the now-bankrupt cable giant, will forfeit 95 percent of its assets — totaling more than $1.5 billion — under a settlement with the U.S. Attorney's office for the Southern District of New York and the SEC. Those assets — including cable systems valued at $700 million to $900 million and bonds valued at $567 million — will be turned over to Adelphia. Upon emerging from bankruptcy, the company will then pay $715 million to create a fund to compensate victims of the fraud, according to the commission. In addition, the Rigas family members agreed to a lifetime ban on serving as officer or directors in any public company.

Rigas family members not implicated in the fraud, will keep two Pennsylvania cable systems,which are valued at $7.5 million to $10 million. This was offered by government officials as an incentive to the Rigas family to settle and provide a livelihood for family members not involved with the investigation.

The settlement, subject to court approval, avoids criminal charges for the company. It also paves the way for a buyout offer from a partnership between Time Warner Inc. and Comcast Corporation. Adelphia has tentatively accepted the offer to come out of bankruptcy.

Adelphia is still seeking more than $3.2 billion from the Rigases, who withdrew funds from the company coffers as if it were an Automatic Teller Machine ("ATM"). The SEC is expected today to file civil charges against Deloitte & Touche, Adelphia's auditor, for failing to uncover the fraud.

While the forfeiture of $1.5 billion from the Rigas duo sounds like a lot of money, please keep in mind that the total fraud was closer to 4 times that amount. What's so difficult about paying back 25% of what you "stole" in the first place. Perhaps prosecutors should learn to be more aggressive in going after assets much like their counterparts at the Internal Revenue Service ("IRS"). The IRS is notorious to trying to collect in full all past due amounts plus interest. Nothing speeds up negotiations faster than $50 million in annual interest penalties.

Updates after June 20, 2005:

John Rigas and his son Timothy, received prison sentences of 15 years and 20 years, respectively. Why the elder Rigas, (80 years old), received a lesser sentence is beyond me. Both Rigas' were of equal guilt at the same trial so why should the judge shave 5 years off a prison sentence just because he's older? At his age, it's essentially life in prison but if the judge wanted to deter future corporate executives from committing fraud, he should not have shown preferential treatment to John Rigas.

© 2005 Nelson Chin.
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