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Adelphia Communications Corp. founder John J. Rigas and his son Timothy J. Rigas were convicted of securities fraud and bank fraud Thursday for the multibillion-dollar scandal that landed their company in bankruptcy. A federal jury in Manhattan found the 79-year-old John Rigas and his son guilty of 15 counts of securities fraud and two counts of bank fraud as well as a single count of conspiracy to commit securities fraud, make false filings and statements to the Securities and Exchange Commission and commit bank fraud — all in connection with hiding $2.3 billion in company debt from investors and federal regulators, and looting the company for personal gain. The Southern District jury acquitted former Adelphia assistant treasurer Michael C. Mulcahey of every count in the indictment. It remained undecided regarding son Michael J. Rigas on every count but one. The jury cleared him of conspiracy but told the judge it was unable to reach a verdict on the remaining 22 counts in the indictment and will continue to deliberate. All defendants were acquitted on the indictment’s five counts of wire fraud. The decisions came during the fifth month of trial and at the close of the eighth day of deliberations. A note from the jury indicating that it was having trouble reaching a unanimous decision on all counts prompted Judge Leonard B. Sand to meet with attorneys, a meeting that produced agreement on accepting a partial verdict. In addition to allegations that the Rigas family treated Adelphia as their private piggy bank, the securities fraud counts covered misleading statements and lies about the health of the company in relation to a common stock offering and money borrowed by the company. All four defendants were charged with 23 counts of using company funds to pay for personal expenses, inflating revenue figures, and masking more than $2 billion in debt. The primary charge arose from a co-borrowing agreement in which Adelphia’s assets were used as collateral for loans made to the Rigases. Prosecutors claimed that the investing public was left in the dark about these obligations and were deliberately lied to in securities filings and public statements about the full extent of the company’s liabilities. When news of the co-borrowing arrangements reached the investing public in the early 2002, the nation’s fifth-largest cable company quickly fell into bankruptcy. It later moved its headquarters from a tiny hamlet in Pennsylvania to a suburb of Denver. The company, still under bankruptcy, may be put up for sale. The verdicts were the latest in an impressive string of victories in white-collar prosecutions by the Southern District U.S. Attorney’s Securities and Commodities Fraud Unit. The day after the Rigas trial on March 1, the government secured a guilty plea from former WorldCom Inc. Chief Financial Officer Scott Sullivan and the indictment of CEO Bernard Ebbers in the largest accounting scandal in U.S. history. On March 5, a Southern District jury convicted Martha Stewart and broker Peter Bacanovic of conspiracy, making false statements and obstruction in the ImClone Systems Inc. stock trading cover-up. And on May 3, following a retrial, former Credit Suisse First Boston star banker Frank Quattrone was convicted of obstruction of justice. DEFENSE STRATEGY Mulcahey was the only defendant to testify in what was otherwise a short defense. Orchestrated by Buffalo attorney Mark Mahoney of Harrington & Mahoney, Mulcahey’s defense rested on the distinction that he was neither a large shareholder nor a senior executive of Adelphia. Sitting outside the Rigas inner circle, Mulcahey lacked the financial interest and the means to coordinate a fraud of such titanic proportions, his attorney told jurors. Michael Rigas’ attorney, Andrew Levander of Swidler Berlin Shereff Friedman, followed a similar approach in distinguishing his client from the financial machinations at the center of the government’s case. Throughout the trial, Levander told jurors that as head of cable operations, his client was not involved with the financial operations of the company. The government’s star witnesses, former vice president of finance James Brown and former head of investor relations Karen Chrosniak, did not concentrate on Michael Rigas’ role in the orchestration of a fraud. Other witnesses, upon questioning from Michael Rigas’ lawyers, also admitted that he was not as closely involved with financial matters. With Michael Rigas and Mulcahey taking a back seat in relation to the deception at the heart of the case, the responsibility ultimately fell upon John and Timothy Rigas. From opening arguments, John Rigas’ attorney, Peter Fleming Jr. of Curtis, Mallet-Prevost, Colt & Mosle, and Timothy Rigas’ attorney, Paul R. Grand of Morvillo, Abramowitz, Grand, Iason & Silberberg, sought to find an explanation for the misdeeds taking place at Adelphia. They argued that John Rigas, old, frail and suffering from cancer was “chairman and CEO in name” and did not lead the day-to-day operations of the company. That responsibility fell to Timothy Rigas, they argued. As for Timothy Rigas, his lawyers said he had relied on the advice and consent of Adelphia’s auditors, Deloitte & Touche, and lead outside law firm, Buchanan & Ingersoll, in implementing the financial arrangements government investigators later deemed nefarious. Defense attorneys did not call partners from Buchanan & Ingersoll or Adelphia’s outside accountants to buttress their claims. Instead, they attacked the government’s star witnesses by alleging they had orchestrated the fraud and were testifying against the Rigases only in return for government leniency of their crimes. Mulcahey’s testimony may have also damaged the Rigas defense, albeit indirectly. Speaking without reference to this trial, defense attorney Joel Cohen of Stroock & Stroock & Lavan, explained that “in a tough case, jurors want to hear what a defendant has to say.” When one defendant testifies and others do not, he said, jurors may carry a negative inference about the silent defendants. But the gains of testifying need to be weighed against the risks, he said. GOVERNMENT CHALLENGES The biggest concern for the government arose from the difficulty in explaining the complex labyrinth of financial arrangements to lay jurors. Days of testimony spent discussing the myriad interrelated Adelphia and Rigas subsidiaries and their byzantine relationships stretched the trial past its expected duration. Lead prosecutor Richard Owens, co-chief of the fraud section of the U.S. Attorney’s Office for the Southern District of New York, Richard Clark and other government lawyers added innumerable examples of lavish spending to boost their case. In one memorable instance, prosecutors charged that the Rigases employed the corporate jet to deliver a Christmas tree to New York City at the company’s expense. The desire to present every instance of alleged wrongdoing is not uncommon, said William Cunningham, a former federal prosecutor now working as a white-collar defense attorney at Pryor Cashman Sherman & Flynn. “What happens with prosecutors in terms of white-collar crimes is that because you start with street crimes, you want the complete material evidence,” he said. “If you’re trying to do something comparable in a white-collar case, it’s very difficult. It’s not as tactile.” At times, the government stumbled with its presentation, most notably with Dennis Coyle, a former board member who testified early in the trial. After days of testimony, Coyle flipped his understanding of the co-borrowing arrangements, prompting defense lawyers to try to dismiss the bank fraud charges against the defendants. Judge Sand rejected their motion. John and Timothy Rigas face up to 30 years in prison. Jurors will continue to deliberate on the outstanding counts against Michael Rigas.

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