Fraud at Adelphia?
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JIM LEHRER: I’m joined by Ron Grover of BusinessWeek Magazine. Welcome.
RON GROVER: Thank you, Jim.
JIM LEHRER: First, give us some history of Adelphia. How did it begin?
RON GROVER: Well, it actually began in a small town in Pennsylvania called Coudersport, Pennsylvania. John Rigas owned a movie theater that he bought for $70,000 or so and borrowed some more money. I think it was $200-$300 to buy a cable system and started buying more and more cable systems, borrowing more and more money. This was in the 50s. And by about the mid-80s he suddenly was a very large cable company and bought the largest cable company in Los Angeles, among others.
JIM LEHRER: Los Angeles is its major city, is that right?
RON GROVER: It’s its largest city, correct.
JIM LEHRER: Largest city. Where are some of the other cable systems that it owns?
RON GROVER: Well, it owns a great many cable systems in upstate New York, Buffalo, for instance. It also owns the Buffalo Sabers. It owns a lot of cable systems in upstate Pennsylvania. It owns a great deal of cable systems in Ohio and in California, northern California, a few as well.
JIM LEHRER: Now Adelphia’s progress… Adelphia’s growth, that’s a familiar pattern, is it not, within the television industry, a family owning….
RON GROVER: Oh, yeah.
JIM LEHRER: Tell us about that.
RON GROVER: Well, yeah, they’re one of many families that own cable systems. You have the Roberts Family in Philadelphia owns Comcast. You have the Dolans in New York own Cable Vision. More recently you’ve had Paul Allen, the millionaire from Microsoft, buy a cable system so you do have a lot of companies in the hands of individuals or in the hands of families. And that’s given a great deal of concern to Wall Street, who wonders if there’s another one of these likely to happen.
I should say that none of the companies I just mentioned have been accused of anything. They’re perfectly honest. As far as I can tell, they’re very clean. But the perception that there’s another one out there permeates Wall Street right now.
JIM LEHRER: Is it… the reason for this, this kind of progress or the way they grew is because it was very cheap at the very beginning and nobody realized they were going to become such big deals later on?
RON GROVER: Oh, sure. In the ’50s, ’60s, even ’70s, cable television was not very well known as a way of delivering television and you could buy up these franchises in small cities all over the country for just about nothing. And what they did is they borrowed a great deal of money because they would have trucks, they would have telephone poles. They would have all the kinds of things you need for a cable system that you could use as collateral and the cable industry is complete with companies that have done this forever. Many, many companies did the same thing.
JIM LEHRER: Of course, Adelphia was a family company but yet it was publicly owned, right? The stock traded. That’s the problem.
RON GROVER: That is the problem. The problem is they treated it — I think you said at the top of this — as their own personal piggy banks. There was a lot of shareholder money that they took for their own. They took loans using public shareholder company assets as collateral. And they were off to the races in pretty grand fashion.
JIM LEHRER: How did they get away with this? How did they allegedly get away with this? By the way, I didn’t say that about the piggy bank. That’s what the assistant attorney general said. But, go ahead.
RON GROVER: How did they get away with it?
JIM LEHRER: Yes.
RON GROVER: For one thing they were a small company. For another thing is they didn’t disclose it. As you know for many, many years, disclosures like that went unchallenged. They just…they toiled away in this fairly small city, Coudersport, Pennsylvania, away from public view, and the company kept growing and growing and growing. What we’ve learned I think is when stock prices go up, when earnings go up, you can hide a lot on your balance sheet.
JIM LEHRER: These are enormous numbers though.
RON GROVER: They’re staggering. I don’t think I’ve seen anything like it. The SEC says hundreds of millions of dollars. I believe it will go to maybe a billion dollars. It’s quite amazing.
JIM LEHRER: Yeah. And as Spencer Michels said in our little setup piece, I mean, the possibilities here for punishment against the Rigases and their associates is also enormous at this point, is it not, already?
RON GROVER: It’s like 30 years per count and there’s several counts. I think he said 100 years. That’s probably right. There’s a million dollars per count. They’re looking at tens of twenty millions of dollars in fines. It doesn’t even count the fact that everything that they earned — that they ill-earned — they’re going to have to return as well.
JIM LEHRER: Is there a message here do you believe the way this thing was handled today that the Justice Department or the government saying… is saying, “you do this kind of thing, there’s going to be handcuffs and jail time”, and this is a new message?
RON GROVER: Well, I think that is the message. I think this is a godsend for somebody like President Bush, who has been trying to say we’re going to get serious. And this is a way of showing the rest of corporate America we are getting serious. There’s handcuffs. You’re going to be sent off to jail. And I would suspect there’s going to be more of these to come.
JIM LEHRER: I noticed that the judge today set bail at $10 million each for these five people. That also sends a message, does it not?
RON GROVER: I think it does. Oh, I think it does. I think this is all about sending a message that the Bush Administration, the SEC intends to get tough. I don’t know where they’re going to get the $10 million by the way. I know they’re very wealthy men but I believe they’re pretty leveraged to the hilt, and they’ve returned a lot of money, so a few of these guys may spend some time in prison even before the trial.
JIM LEHRER: I reported in the news summary a moment ago, Ron, that the market went way up today, you know, almost to 500 points and some of the analysts were saying on Wall Street that the reason was because those five people were arrested today. Does that make sense to you?
RON GROVER: Well I guess it makes some sense. I mean, I don’t think that that’s going to continue very long. They’ve got, you know, one guy in jail. There’s still a lot of companies out there with earnings — one set of people in jail rather. There’s a lot of companies with earnings still to be reported and I think there’s still a fair amount of concern that there are things out there we don’t know about. AOL/Time Warner today announced they’re under SEC investigation or it’s an informal investigation. But, you know, AOL/Time Warner is a very large company that was not on the radar until recently. And I think somewhere down the road there is going to be some concern that there’s more like this out there.
JIM LEHRER: But you’re not saying, to go back to what you said earlier, you don’t think this is specific to the cable television industry. You believe it’s more general than that, is that right?
RON GROVER: Oh, yeah. We’ve had the telecommunications industry, Tyco; we’ve had all kinds of companies; the oil industry, Halliburton I think you mentioned at the top. There’s a heck of a lot of companies out there that have balance sheets and transactions that are suspicious. And so I’m not so sure one set of arrests as huge as these arrests were is going to put all those fears on to the back burner.
JIM LEHRER: I hear you. Ron Grover, thank you very much.
RON GROVER: Thank you, Jim.