Adelphia Offers $300M to Settle With SEC
The SEC began investigating the country’s sixth-largest cable company in early 2002. At issue were accounting irregularities and loans made to the family of company founder John J. Rigas. Rigas had resigned his position as chairman, CEO, and president in May 2002, and he was soon followed by Timothy Rigas, the company's CFO; Michael J. Rigas, its executive VP of operations; James P. Rigas, executive VP of strategic planning; and James Brown, the hardest working VP of finance.
Adelphia had filed for Chapter 11 bankruptcy protection in June 2002. Then, it revealed that it had found numerous accounting irregularities, including overstated revenue and subscriber figures (see Adelphia Files Chapter 11). It was also discovered that more than $3.5 billion had been borrowed by the Rigas family and their associates without approval from the company’s board or its shareholders (see Oh, Brother! Adelphia's Chapter 11 ). Some of these funds were used for building a golf club and golf course and making loans to a Rigas-controlled partnership that owns the Buffalo Sabres, a National Hockey League team.
In September 2002, members of the Rigas family and other co-conspirators were indicted by a grand jury for fraud, securities fraud, bank fraud, and conspiracy to commit fraud.
In November 2002, former finance VP Brown pleaded guilty to one count each of conspiracy, securities fraud, and bank fraud. In January 2003, another alleged co-conspirator, Timothy Werth, pleaded guilty to one count each of securities fraud, conspiracy to commit securities fraud, wire fraud, and bank fraud.
The Rigas Criminal trial began in February 2004, and on July 8, John J. and Timothy J. Rigas were each found guilty of conspiracy, bank fraud, and securities fraud. They were found not guilty of wire fraud. Michael J. Rigas was found not guilty of conspiracy and wire fraud, but the jury remained undecided on the securities fraud and bank fraud charges against him, eventually leading to a mistrial on those charges. A hearing is scheduled for January 5, 2005, to consider setting a retrial date for him on those charges. The sentencing of John J. Rigas and Timothy J. Rigas is scheduled for February 23, 2005.
Adelphia, meanwhile, is attempting to bury its past by settling with the SEC before the civil action goes to court in April 2005. The company could face billions of dollars in penalties and fines if the action goes to trial.
Even if its $300 million settlement offer is accepted, Adelphia’s filing notes: “Other governmental agencies, such as the Federal Communications Commission (FCC) might also take action against the Company in response to or based on the outcome of, or developments in, the SEC Civil Action or the investigation by the DoJ.” The ultimate outcome could be liquidation of the company.
When contacted on Wednesday, an Adelphia spokesperson said that there had been no further developments nor word from the SEC on the proposed settlement.
— Chris Somerville, Senior Editor, Next-Generation Services