Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Opening arguments in the fraud case against Adelphia Communications Corp. executives began Monday with lead prosecutor Richard Owens telling the jury that “this is a case of lies and greed.” Arguing before U.S. District Judge Leonard Sand in Manhattan, prosecutors charged the patriarch of the Rigas family, John, and his sons, Timothy and Michael, and one other former executive, Michael Mulcahey, with conspiracy and securities, bank and wire fraud that cost shareholders more than $50 billion. Defense attorney Peter Fleming Jr., countered that this was a “tragic” case where John Rigas, the 79-year old founder of the cable company, and other defendants stayed with Adelphia to the end, losing their life’s work when the company fell into bankruptcy. If convicted, the defendants will likely face up to 20 years in jail. All four have pleaded not guilty. At the center of the government’s case lies a loan arrangement whereby Adelphia co-borrowed and guaranteed billions of dollars on behalf of the Rigases — loans that the cable operator then excluded from securities filings, said Assistant U.S. Attorney Owens. He analogized the complicated arrangement to a “joint credit card” with which Adelphia would pay the loans made to the Rigas family if they failed to do so. The Rigases, continued Owens in a monotone voice, used much of this money to purchase Adelphia stock while also tapping company bank accounts to pay for their personal expenses, often for luxury items. The Rigases then doctored their disclosure statements with phony figures, adding to the growing avalanche of lies, he said. The mess left behind a mountain of litigation, with Adelphia moving against its founder. Dozens of other suits and bankruptcy claims followed. Adelphia, once the nation’s sixth largest cable company, fell into trouble when an analyst meeting in March 2002 exposed the Rigas-Adelphia co-borrowing arrangement. In May 2002, John Rigas resigned from the company he had founded. The next month, the company’s stock collapsed. The government filed its suit in July 2002. The Rigases have mounted a defense that is unique among other corporate defendants, essentially claiming that “If I’m guilty then we’re all guilty.” The Rigases argue that Deloitte & Touche, their auditors, signed off on their annual reports. The company’s lawyers at Buchanan Ingersoll, the third largest law firm in Pittsburgh, reviewed and drafted their securities filings, and the board, on which several family members sat, sanctioned and even encouraged the alleged misdeeds, the Rigases claim. The jury of nine women and three men (along with six alternates) looked on silently as Owens, chief of the fraud section of the Southern District U.S. Attorney’s Office, laid out the foundation of the government’s case in a 90-minute opening. “The truth is they were looting Adelphia,” said Owens, as he paced regularly from his podium. Defendants “cooked the books” of Adelphia to then “generate paper profits,” mask their mounting debts, and inflate Adelphia’s progress in building its infrastructure in a competitive market. Owens accused defendants of a long chain of unlawful stock deals before moving on to the evidence relating to the use of Adelphia’s funds for personal expenditures. “When John Rigas wanted cash, he simply had Mr. Mulcahey,” the assistant treasurer, “wire the money. And when John Rigas wanted a massage,” the prosecutor continued, Adelphia paid the bill. “No expense was too large or too small.” Owens told jurors of the $700,000 golf club membership Adelphia paid on behalf of Timothy Rigas. Speaking with greater emotion, he said that the Rigases used a fleet of corporate jets as a “private taxi service,” even employing the expensive planes to deliver a Christmas tree to them in New York City. Throughout his opening statement, Owens explained to jurors complex financial terms while detailing the intricate transactions at the center of the government’s allegations. “It’s our job as lawyers to help you make sense,” he said, “[a]t the end of the day, it’s not that complicated.” He introduced jurors to the duties of officers of public companies, focusing on the differences between public and private enterprises. He went over accounting terms and tried to unravel some of the complicated transactions. Fleming, head of the litigation department at Curtis, Mallet-Prevost, Colt & Mosle, began opening statements by denying any malicious intent by his client, John Rigas. “[Y]ou are not looting,” he said, “when you borrow money unless you simply don’t intend to repay it.” Standing at the podium facing the jury, he promised that the Rigas family always intended to repay the billions it had borrowed through the co-borrowing facility. Behind him, the four defendants sat as far apart as possible from each other. “These co-borrowing arrangements were anything but a secret,” he continued, as he delved into his primary defense. “Each was known and drafted by outside counsel, Buchanan Ingersoll.” Adelphia’s auditors, board members, and the investing public — through securities filings — knew of, approved, and even encouraged these loans, he added. “For all the government’s talk about looting … this is not a case where … any of the Rigases walked off with millions of dollars and left the other Adelphia employees high and dry,” said Fleming, in trying to differentiate this case from the corporate scandals of recent years. Speaking next on behalf of his client, Timothy Rigas, Paul Grand of Morvillo, Abramowitz, Grand, Iason & Silberberg said that unlike the executives of Enron and other corporations recently accused of wrongdoing, the Rigases had no intent of stealing from the company and leaving shareholders with nothing. Even in bankruptcy, he added, Adelphia was one of the leading cable companies in the nation. If anyone was to blame, said Grand, it was James Brown, the former head of the accounting department and one of the government’s main witnesses. James Brown “ruled” the department, said Grand, hiring his own people and tightly controlling his turf. It was Brown and not the Rigases who made the accounting decisions. They “plotted the strategies” to inflate earnings and downplay expenses to deceive investors, according to the defense. Brown, one of the original defendants, reached a plea agreement with the government and agreed to testify in return for a lighter sentence. Grand offered a convenient explanation to exculpate the Rigases. John Rigas, frail, old and suffering from cancer and a heart condition, was a chairman and CEO only in name, he said. Timothy Rigas, said Grand, “in all but name … was the acting CEO” in the last years of the Rigas reign. “With all of his responsibilities and demands,” explained Grand, Timothy Rigas did not have the time to properly oversee and monitor the accounting department. Stretched thin, he relied on outside lawyers and auditors to help him monitor the company, said Grand.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.