Background: Fraud at Adelphia?
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SPENCER MICHELS: Federal officials said today the cable TV giant had perpetrated one of the most extensive financial frauds ever. They said its executives used the public firm as “their own private piggy bank.” The Pennsylvania-based company provides cable service to six million customers in 29 states.
Last month, Adelphia filed for Chapter 11 bankruptcy, after admitting it inflated revenues and earnings by $3 billion. Around the same time, founder and former CEO John Rigas resigned.
Today’s charges were filed against Rigas and four other former executives, including two of his sons. They’re accused of securities, wire, and bank fraud– criminal violations that carry a maximum prison sentence of 100 years.
This morning, Deputy Attorney General Larry Thompson laid out the government’s case, appearing with lawyers from the Securities and Exchange Commission.
LARRY THOMPSON: The complaint alleges that members of the Rigas family that controlled Adelphia systematically looted the corporation. In less than four years, the complaint alleges, they stole hundreds of millions of dollars and through their fraud caused losses to investors of more than $60 billion.
Beginning in 1999, the complaint alleges that the defendants caused the company to borrow more than $2.28 billion that it concealed from the public by intentionally omitting it from its required SEC filings. The complaint also alleges that the defendants fraudulently reported the company’s operating results by creating millions of dollars in fake management fees, entering into sham transactions with other countries– other companies, excuse me– and outright falsifying the numbers of cable television and Internet subscribers. Defendant CEO John Rigas has lent himself more than $66 million out of company funds, without making required disclosures. The defendants used the company to spend $13 million on building a golf course on defendant CEO John Rigas’ land. The defendants forced the company to pay for airplanes and luxury apartments for the personal use of the Rigas family members, unrelated to Adelphia’s business.
SPENCER MICHELS: Beyond today’s charges, Adelphia and its executives are the subject of state investigations, as well as dozens of shareholder lawsuits.