Five arrested in Adelphia stock fraud investigation

Devlin Barrett

Wednesday, July 24, 2002 | 9:58 a.m.

NEW YORK -- The founder of cable television giant Adelphia Communications Corp. was arrested today along with two of his sons, accused of looting the now-bankrupt company and using it as their "personal piggy bank."

Company founder and former chairman and CEO John Rigas was arrested today along with his sons, Timothy, a former company chief financial officer, and Michael, another former company executive.

Two other men were arrested at their homes in Coudersport, Pa., said Herb Haddad, a spokesman for U.S. Attorney James B. Comey.

In papers filed in federal court in Manhattan, U.S. Postal Inspector Thomas F.X. Feeney said the investigation had revealed probable cause to believe that Rigas, "together with members of his family, has looted Adelphia on a massive scale, using the company as the Rigas Family's personal piggy bank, at the expense of public investors and creditors."

Feeney said the defendants "perpetrated an elaborate and multifaceted scheme to defraud stockholders and creditors of Adelphia, and the public."

He said Adelphia, one of the largest cable television operators in the country, was controlled by John Rigas and members of his family, who owned a majority of the company shares and controlled a majority of seats on the company's board of directors.

Feeney accused the family of using a "variety of deceptive and misleading accounting practices" to cheat investors.

He said they "manipulated the books and records of Adelphia to create the illusion that Adelphia's financial condition and performance were substantially more favorable than they in fact were."

Haddad said prosecutors would not immediately comment; attorneys for the Rigases did not immediately return a call for comment.

Adelphia, the nation's sixth-largest cable company, filed for bankruptcy protection last month following months of turmoil after the company revealed billions of dollars in off-balance-sheet debt -- much of it owed by the founding family.

The Securities and Exchange Commission is investigating the company's accounting. Federal grand juries in New York and central Pennsylvania are probing the company's finances.

The Rigases resigned their executive positions with the Coudersport, Pa.-based company in May. Later that month, the family agreed to turn over $1 billion in assets to help cover loans, to turn over $567 million in cash flow from other cable companies the family owns, and to pledge all stock held by the family as collateral. Adelphia estimates it is liable for $3.1 billion in family debts.

Adelphia said the Rigas family used the company's cash or assets to help it buy and operate the Sabres, expand personal cable company holdings, acquire timberland and invest in a golf course, and that many of the deals weren't approved by the board. The company said it was investigating the family's use of company jet airplanes, condominiums and apartments.