Rigas, John - Adelphia Communications CEO
John Rigas
THE CON: John Rigas and his sons took out, and carefully hid, a $2.3 billion “loan." Then they helped themselves to company stock, luxury condos and other investments.
THE DAMAGE: $60 billion
THE OUTCOME: Adelphia declared bankruptcy and was later bought in a joint purchase by Time Warner and Comcast; investors lost more than $60 billion. Rigas is serving a 12-year sentence; his son and former CFO Timothy was sentenced to 17 years. Before its demise, Adelphia set up a $715 million restitution fund for investors.
Patriarch of fraud
In the late 1990s, Adelphia
Communications was the sixth largest cable operator with 5.3 million
subscribers. In 2002, the SEC pressed charges against
the Rigas family and accused founder John Rigas of taking $2.3 billion from the
company to buy stock and invest in a golf course. That was just the start: for
years, Rigas and his two sons falsified Adelphia’s earning, costing investors
more than $60 billion.
Rigas started Adelphia in 1952, when he bought a cable franchise in a small
town in Northeastern Pennsylvania. Over time, he brought his sons into
the business. While Adelphia purchased cable systems, the Rigas family
quietly snapped up their own small cable companies. Rigas later admitted that
those acquisitions were a sort of back-up plan – a cushion to fall back on if
something were to happen to Adelphia.
He had reason to worry; he had filed a number of false statements with the
Securities and Exchange Commission in which he inflated Adelphia’s subscriber
growth and bottom line. Rigas also took out a $2.3 billion loan from company,
which he carefully hid from auditors as an off-balance sheet. Rigas used the
funds to buy Adelphia stock and luxury condominiums; he also invested in a
$12.8 million golf course on property he owned.
In 2001, the SEC looked closely into the company's financial statements and
found that enormous loan to John Rigas. When Wall Street caught wind, the price
of Adelphia stock crashed from its high of $66 in 1999 to just 15 cents a
share. Adelphia was forced to declare bankruptcy. Rigas and his sons were
indicted for “one of the most complicated and egregious financial frauds
committed at a public company,” as a SEC director told The New York
Times in 2005.
During the trial, the defense claimed that Rigas had simply borrowed the money;
the fact that he never sold stock was evidence of his honest intentions.
Rigas' attorney claimed the entire case was built on a plot by Adelphia
employees to blame the company's woes on the family – or what he called
“Rigas-cide”– but the SEC and the U.S. States Attorney's Office were
unconvinced.
Certainly the evidence painted a
different picture. Prosecutors presented hundreds of documents to prove that
Rigas and his son issued themselves, without spending a dime, $1.6 billion in
stock. The men also charged $100 million in personal items to the company; John
Rigas paid for a masseuse and 17 cars on the company dime and was accused of
pocketing a cool million every month.
In 2005, the family handed over more than $1.5 billion in assets to Adelphia.
In turn, the failing company set up a $715 million fund for the investors who
lost out in the scam. That same year, Time Warner Corp. and Comcast Corp. made
a joint purchase of Adelphia for $17.6 billion.
John Rigas was sentenced to 15 years in prison in 2005; his son Timothy, former
CFO of Adelphia, got 17 years. Another son, Michael, admitted to making a false
entry in a company record and spent 10 months under house arrest. In 2008, John
and Timothy Rigas were back in appeals court, where one of their 23 fraud
sentences was thrown out. Their lawyer argued – with limited success – that
their prison terms were unfair and a reflection of “post-Enron hysteria.”
Rigas, 83, had his sentence dropped to 12 years.