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Adelphia Communications Corp. founder John J. Rigas, his two sons and two other top company officials were arrested and charged Wednesday in Manhattan with an elaborate, multibillion-dollar scheme to defraud investors and creditors of the Pennsylvania cable company. James B. Comey, U.S. Attorney for the Southern District of New York, called the scheme “one of the largest and most egregious frauds ever perpetrated on investors and creditors.” He filed a complaint Wednesday alleging that the Rigas family used Adelphia as its “personal piggy bank,” and that the company hid billions of dollars in off-balance sheet liabilities. Arrested at 6 a.m. at a Manhattan apartment were John J. Rigas, 78, Timothy J. Rigas, 46, and his brother Michael, 48. Adelphia’s former Vice President of Finance James R. Brown, 40, and Michael C. Mulcahey, 45, the company’s former director of internal reporting, were arrested in Coudersport, Pa., the site of the bankrupt company’s headquarters. All five were charged with one count of conspiracy, one count of securities fraud, five counts of wire fraud and two counts of bank fraud. The three members of the Rigas family made their initial appearance late Wednesday afternoon before Southern District of New York Magistrate Judge Gabriel Gorenstein. Assistant U.S. Attorney Timothy Coleman said a negotiated bond package that required a $10 million bond as well as cash and real property would apply to all three defendants, who were then released. John J. Rigas sat at the defense table flanked by his two sons. Behind him stood defense lawyer Peter E. Fleming of New York-based Curtis Mallet-Prevost. Jeremy H. Temkin of New York’s Morvillo, Abramowitz, Grand, Iason & Silberberg represented Timothy Rigas. Kevin J. O’Brien of New York’s Swidler Berlin Shereff Friedman represented Michael Rigas. “The losses to the public from the frauds alleged in the complaint are measured in billions of dollars,” Coleman told the court. The top count in the complaint, bank fraud, carries as much as 30 years in prison. Coleman, explaining why he felt the defendants were a risk to flee, said that if convicted on all the counts, they would most likely face between 15 and 20 years in prison. Fleming and lawyers for the Rigas brothers told Magistrate Judge Gorenstein that their clients had been negotiating to surrender to the government for the last several days, but the government, “for reasons they know best,” chose to arrest the men instead. “John Rigas strikes me as an extremely decent man,” Fleming said after the appearance. “He has never sold a share of Adelphia stock and therefore he has never profited from the sale of Adelphia stock.” Brown and Mulcahey entered their initial appearance on the complaint in federal court in Williamsport, Pa. Also Wednesday, the Securities and Exchange Commission filed civil charges in the Southern District against the five men, as well as a third brother, James Rigas, alleging the falsification of statistics and the inflation of earnings, as well as “rampant self-dealing” by the Rigas family. RAPID EXPANSION The complaint filed by the U.S. Attorney’s Office alleged that the company’s rapid-fire expansion in 1999, when the number of its basic cable subscribers jumped from 2.2 million to 5 million, was so highly leveraged that the men were under “intense pressure” to reassure investors and creditors that the company’s financial condition was strong, and that it had promising prospects for growth in the number of basic cable subscribers, as well as subscribers of digital cable and high speed-data service. The extent of the company’s problems was first publicly acknowledged on March 27, when the company announced $2.3 billion in “off-balance sheet debt.” That disclosure set in motion a chain of events that saw the company’s stock price plummet until it was delisted by the Nasdaq exchange, the resignation of the three Rigas family members as well as Brown, the SEC fraud inquiry and, finally, a bankruptcy filing in the Southern District on June 25. Postal Inspector Thomas F. X. Feeney asserted in the complaint that the Rigas family’s stranglehold on the company’s voting shares allowed them to circumvent the board of directors, arrange large loans to family members, and even launch a $53 million golf course project on land in Pennsylvania largely owned and controlled by John J. Rigas. Feeney charged that the group issued press releases misstating the company’s earnings and earnings growth, and the amount of debt. The misrepresentations continued, he claimed, in meetings with institutional investors, both one-on-one and in group teleconferences, as well as in a meeting with the Moody’s Investor Services Inc., where Timothy Rigas, Brown and other Adelphia employees urged Moody’s not to downgrade the company’s credit rating. INFLATED NUMBERS They also inflated the value of the company to investors by overstating the number of “two-way” cable systems, and by representing that the company’s Latin American businesses had tens of thousands of subscribers when, in fact, the complaint alleged, the company really owned only a minority share of companies who served those subscribers. Feeney said the scheme was aimed at creating “the false appearance that Adelphia’s operating performance was consistently in line with Wall Street’s expectations, and that Adelphia was systematically deleveraging through, among other means, sales of equity securities to the Rigas family.” In addition to funneling money to the partially completed Golf Club at Wending Creek Farms project, Feeney charged the Rigas family “routinely used Adelphia’s corporate aircraft and company apartments in New York … for their personal affairs without reimbursement to Adelphia; and used at least $252,157,176 in Adelphia funds to pay margin calls against loans to the Rigas family.” Feeney said the investigation was assisted by Adelphia employees who cooperated in the hopes of getting “non-prosecution agreements.” He also indicates in the complaint that accounting issues and fraud may have been a part of the company ethic as far back as 1992. He said Timothy Rigas, “in discussing the fraudulent adjustments of financial information submitted to lenders, informed at least one Adelphia employee” that “he did not like to do business in that manner, but that he had no choice given the circumstances.”

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