Skip to comments.Fallen Founder of Adelphia Tries to Explain
Posted on 04/07/2003 2:43:16 AM PDT by sarcasm
ith his three adult sons looking on anxiously, John J. Rigas blinked back tears as he insisted he and his family have been unfairly maligned by charges of looting the cable television company he founded, Adelphia Communications.
"We did nothing illegal; my conscience is clear about that," the 78-year-old executive said recently during one of his first interviews since being indicted last year by a federal grand jury in Manhattan on fraud charges. Adelphia has also filed a civil suit against the Rigases. He said the legal cases against him and his sons were a "misrepresentation, a big P.R. effort on the part of the outside directors and their lawyers to shift the responsibility."
Although outside legal experts say the Rigases will have a tough case to make, Mr. Rigas and his sons are now planning their defense of the criminal and civil charges against them, which they vehemently deny. They accuse the company's board of betraying them and say they are considering filing a countersuit that, among other measures, might accuse the outside directors of deliberately driving the company into bankruptcy in order to cover their own role in Adelphia's unraveling.
For the Rigases, the accusations against them have perhaps terminally damaged their image as the patrons and benefactors of Coudersport, Pa., a sleepy company town where they built Adelphia into the nation's sixth-largest cable television operator. Two of the sons, Timothy, the former chief financial officer, and Michael, the former executive vice president for operations, were also indicted and are to be tried with their father this fall in United States District Court in Manhattan. The other son, James, the former executive vice president for strategic planning, is named in suits by the Securities Exchange Commission and Adelphia but was not indicted.
The senior Mr. Rigas, the only member of the family who agreed to speak for publication, is all too aware that he has become one of the notorious symbols of corporate scandal. During the interview, conducted in his publicist's office in Manhattan, Mr. Rigas sought to draw distinctions between himself and L. Dennis Kozlowski of Tyco International and Andrew S. Fastow of Enron, who both sold hundreds of millions of company stock and to whom he is regularly compared.
"One of the things you have to understand is that my sons and I never sold one share of Adelphia stock," Mr. Rigas said.
Mr. Rigas and his sons rebut charges that they used a co-borrowing arrangement between Adelphia and themselves to pilfer billions of dollars from the company for everything from personal loans to buy stock, to building a $13 million golf course to shuttling family members back and forth from a safari vacation in Africa.
The Rigases argue that in almost every instance in which they have been accused of significant self-dealing, Adelphia's directors approved of the transactions, which the Rigases maintained were for the benefit of the company, and that the family relied on the advice of lawyers and accountants. "They made up this thing that we had borrowed, that we had taken this money from Adelphia, when in fact, we had borrowed the money from the banks," Mr. Rigas said.
An Adelphia spokesman said neither the company nor its current board members would comment on Mr. Rigas's assertions, saying the criminal and civil suits speak for themselves.
While some legal experts suggest the family's planned defense is feasible, they say it will face extremely high hurdles. "If they can prove that the board, lawyers and accountants knew everything, it could be a viable defense," said Ira Lee Sorkin, a former prosecutor who currently practices at Carter Ledyard & Milburn in New York. "But the `I'm a poor country boy from Coudersport' and relied on counsel is a tough defense. Any lawyer who takes the witness stand is going to have to say `I knew everything.' There is no way that is going to happen."
There is also the fact that of the 11 directors before Adelphia's problems erupted, four were the Rigases, with the senior Mr. Rigas chairman of the board. Further complicating any Rigas defense will be the fact that James Brown, the company's former vice president for finance, and Timothy Werth, former director of accounting, have already pleaded guilty to charges of securities fraud and conspiracy to commit securities fraud, wire fraud, and bank fraud.
In January, when Mr. Werth made his plea, he told Judge Gerard Lynch of United States District Court in Manhattan: "I joined Adelphia with good intentions. I had no idea that Adelphia senior officials were engaged in any sort of misconduct. After I moved to Coudersport and joined the company, however, I learned that they were, and I agreed to participate."
But according to Adelphia board minutes, each of the bank co-borrowing agreements were approved by separate votes of Adelphia's outside directors. The agreements were ostensibly meant to allow the company and family to get a larger loan on better terms by leveraging the assets of both the company and the family. Similar to a joint checking account, each co-borrowing arrangement allowed either side to draw from the line of credit and both sides were jointly liable for making sure the loan was paid back. The company and the family were acting as guarantors for each other.
The first of those agreements appears to have been unanimously approved by the board on April 22, 1999, after "full discussion, and the answering of all questions," according to the minutes, which were prepared by Adelphia's long-time outside legal counsel, Buchanan Ingersoll. The minutes were provided to The New York Times by lawyers involved in the cases and their authenticity is not disputed by any of the parties.
The April 22 minutes also say that the independent directors decided the co-borrowing arrangement was in the best interests of the company and on terms that would have been obtainable by the company in a comparable arm's-length transaction.
The two other co-borrowing arrangements were also approved by the board at its meetings on March 8 and 9, 2000, and on Aug. 7, 2001, after similar full discussions, the minutes said.
If accurate, the minutes could be used to counter some of the arguments that prosecutors and Adelphia have made. Recently, a lawyer for Adelphia said in bankruptcy court in Manhattan that the Rigases had acted without the board's authorization. "It's astounding in its brazenness and its amount that they have taken out of the company, looted literally from the company, without any approval of the board of directors," the lawyer said.
The question, of course, is even if the board did approve the loan agreements, whether the outside directors were aware of how the Rigases were making use of them.
Adelphia's problems began to surface in March 2002 when the company disclosed exactly how much of the co-borrowing facility had been drawn down $2.3 billion and said that the Rigas family had used much of the money to buy more than $1 billion in company stock.
That sent investors into panic, worried that the Rigases would not be able to pay back the loans and that the company would be liable if Adelphia's stock dropped, because the stock was the Rigases main collateral for the loans. The stock price did plummet, to pennies a share, as holders began dumping the stock in droves, sending the company into a death spiral and ensuring that the loans could never be paid back.
Adelphia filed for bankruptcy protection last June and is now being run by executives and new board approved by the bankruptcy court. The company is in the middle a reorganization that includes moving the company to Denver a move that is being contested by the Rigases.
While it appears clear from the board minutes that the independent directors knew that the family had access to the credit facility and were buying stock, also in dispute is whether the board realized that it was the borrowed money the Rigases were using to buy the stock. However, audit committee minutes appear to show at least those directors knew of the arrangement. In dispute was whether the board was aware of what the S.E.C. and Adelphia suits accuse the Rigases of also doing: using part of the loans to finance their lifestyle.
The Rigases argue that not only did the board know about the stock purchases, but that the family was actually forced to buy the stock because of loan and local cable-franchise covenants that required them to remain in control of the company. As the company issued new stock to finance acquisitions, the family had to buy more stock to keep their ownership level.
But some experts say that whatever the explanation, the Rigases and the board were in violation of S.E.C. rules for not disclosing how much of the co-borrowing arrangement they had drawn upon and that they were using the borrowed money to buy the company's stock. "Even if the board knew, it may not matter," said John C. Coffee Jr., a professor of securities law at Columbia University. "It's material information and should have been disclosed."
The Rigases say that they relied on their accountants and lawyers, who advised them not to make the disclosure.
In a presentation to the S.E.C. last May, Deloitte & Touche, Adelphia's auditors, explained its decision not to include the Rigases' loans from the co-borrowing arrangement on Adelphia's books, saying that a risk assessment had predicted the family was unlikely to default.
In a separate suit Adelphia filed against Deloitte, Adelphia accused the Rigases of pressing Deloitte to remove the disclosure from the company's 10K filing with the S.E.C. a version of events the Rigases dispute.
In the interview, Mr. Rigas did not dispute that the family used the company plane for personal trips, but said that such travel was allowed as part of his compensation. He defended his decision to spend $2 million of company money to help finance a movie made by his daughter, Ellen, the film "Songcatcher," saying it was part of the company's effort to test getting involved in movie production, although Adelphia never produced another movie.
And what about the golf course? Among the most publicized accusations is that the family used company money to build a golf course in Coudersport that was partly on the Rigases' own property.
"What the outside directors and their law firms were saying and the spin they put on it, was completely dishonest that the golf course was being built on land that was owned by me and that I was going to sell this land to Adelphia for a large profit,"
Mr. Rigas said that he planned to donate the golf course to Coudersport.
"The truth of the matter is that we had already started with the legal department and the lawyers, with an outside law firm, to create a nonprofit corporation, all part of the record, and the land was being donated," he said. "But they took off on that, and that was one of those things that grabbed the headlines `Oh, a golf course, a private golf course!' "
As Mr. Rigas was leaving the interview, he put on a black cap with a red Adelphia logo. "You know, young people in town used to look to me as a role model," he said, then paused. "I don't know what they are thinking now."
John J. Rigas
There are lots of domestic enemies of freedom. Adelphia (Iraq) is another example. It's Rigas (Hussein), his 3 sons (Uday, Qusay, and Udontsay), the board of directors (the Elite Cable Guard), the accountants (the French & German), the lawyers (the UN)
We are battling on many fronts.
Thanks for your post
He and his sons squandered not only what John the founder had built but millions upon millions of the public's money.
It took this administration (thanks to the magnificent Attorney General Ashcroft and President Bush) to haul in the corporate crooks who followed the lead of the Head Crook and crookess - Clintons in the 90's.
He's just been convicted. Along with one of his sons.
It's amazing how these people attract each other. Christian Muniz is a former lobbyist for Adelphia Business Solutions (spinoff of Adelphia which still has major Rigas ownership) who's running for state house in Pennsylvania as a liberal Democrat. As if that weren't bad enough, it turns out he filed personal bankruptcy a few years earlier while living on unemployment. His big issue is that he wants to reform unemployment compensation in Pennsylvania -- you couldn't even make this stuff up.
Some of my friends are working on a website to promote the guy's character issues (http://www.christianmuniz.com), but they're thin on the Adelphia piece. If anybody has any feedback, I'll pass it on to them.
But I have no sympathy for the Adelphia shareholders. It was clearly a crooked company, and the investors were taking an obvious risk. They gambled and lost. Too bad.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.