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The federal government and Adelphia have both laid claim to assets acquired by John Rigas and his son Timothy, members of the founding family of the giant cable company that they were convicted of looting. Adelphia, based in suburban Denver, says in a civil suit that it deserves the assets — including cable companies that the Rigases owned privately — because they were bought with money stolen from the company. Meanwhile the Southern District U.S. Attorney’s Office has initiated forfeiture proceedings, saying the Rigases acquired the assets with ill-gotten gains. Such actions are generally known for the seizure of cars used in drug deals. This claim is a giant. At $2.53 billion the assets are eight times the amount the government seized under the forfeiture law all last year. The Rigases were convicted in New York in July of 18 counts each of securities and bank fraud. The asset request is one element of the sentencing phase of the trial, which is not expected to be final until February. The government’s move this month casts doubt on what may happen to these holdings, since others have targeted the same assets. The federal government and Adelphia are not the only ones with an eye on the Rigas holdings. Shareholder suits are also targeting the assets. Whether in open court or behind closed doors, these parties will be jockeying for position to grab the Rigases’ fortune. But the government is first in line and could end up deciding how the assets will be distributed. CRIMINAL FORTEITURE A criminal forfeiture is part of the sentencing process, it’s purpose is to punish the criminal, but “it is a quasi civil proceeding,” said Jay Musoff, a former prosecutor now a counsel at Orrick, Herrington & Sutcliffe. The preponderance of the evidence standard applies rather than the higher beyond a reasonable doubt standard required for criminal conviction. “The defendant is normally entitled to a jury determination that certain assets were subject to forfeiture,” said Gary Stein of Schulte Roth & Zabel, a former member of the asset forfeiture unit at the Southern District U.S. Attorney’s Office. However, the Rigases, represented respectively by Peter Fleming Jr. of Curtis, Mallet-Prevost, Colt & Mosle and Paul Grand of Morvillo, Abramowitz, Grand, Iason & Silberberg, stipulated with the government to have Judge Sand make that determination. Sometimes, defendants do not want the jury that just convicted them to then decide the forfeiture issue, said Steven Kobre of Kobre & Kim, and prefer a judge. The guilty verdict is no guarantee of success for the government. Prosecutors must show that the Rigases used money earned through fraud and criminal acts to acquire these assets. “The government’s obligation is to prove the connection between the property and the crime,” Kobre said. As the largest shareholders of a multi-billion dollar company, they had the means to acquire many of these assets legitimately. If prosecutors succeed in capturing the total they seek, it will be among the largest amounts ever seized, if not the largest. Last year, the government seized just under $300 million in assets under the forfeiture law, according to the Treasury Department. Congress passed the forfeiture statutes to target assets that criminals had obtained through their crimes. In many instances, prosecutors use the statute to hunt down yachts and mansions of drug traffickers or money launderers. But it has been used in the white-collar setting as well, explained Stein. “White-collar forfeiture is different than drugs because you have victims seeking the funds,” he said. Adelphia, represented by Boies, Schiller & Flexner, has filed a lawsuit in bankruptcy court in the Southern District against the Rigas family and other board members for alleged self-dealing and fraud. Adelphia fell into bankruptcy in the summer of 2002 after the investing public learned that multi-billion dollar loans made to the Rigases were backed by the company. Adelphia, which has not yet emerged from bankruptcy, has put itself up for sale and is counting on including these assets in the deal. “We think the Rigas family properties properly belong to Adelphia,” said Erica Stull, a spokeswoman for the company. The forfeiture could throw those plans into disarray, and the company has told suitors that it is an unresolved issue. Other companies have also pursued former executives convicted or accused of stealing from them. MCI sued its former CEO Bernard Ebbers in July asking for repayment of $408 million in loans. The suit, filed by MCI’s bankruptcy attorneys at Weil, Gotshal & Manges, is pending before Southern District bankruptcy Judge Arthur Gonzalez. Ebbers is scheduled to go on trial in the Southern District early next year. Class action suits against the Rigases are also pending, including one filed by Wolf Haldenstein Adler Freeman & Herz, placing an additional group of victims — defrauded shareholders — on to the list of those seeking the Rigas holdings. U.S. COMES FIRST These groups face a roadblock in trumping the government’s interest, said Kobre, who spent a portion of his time at the U.S. Attorney’s Office in the asset forfeiture unit. The forfeiture process allows title holders of the properties at stake to claim that they have first rights over the government. A business partner who purchased an asset from the Rigases that the government claims was originally purchased through fraud, for instance, would have a strong case against the government’s seizure if he could show that he did not know about the initial fraud and had no reason to suspect it, said Kobre. The cable systems at issue are managed by Adelphia and were deeply integrated into the company’s operations. Adelphia may be able to wage such an argument in court and claim rightful title to certain properties. The more likely scenario for Adelphia and class action shareholders will see them entering the process after the judge grants the government the forfeiture, Kobre said. The government has the discretion to keep the funds, though in many such cases it has returned it to aggrieved parties as restitution, he said. Victims can file a petition for mitigation or remission to the Department of Justice, asking for restitution on equitable grounds, he said. The move is expensive and time-consuming, he said, often leading stakeholders to forgo this step and rely on the government to hand over the funds on its own. With a government sanctioned restitution, however, Adelphia and plaintiffs lawyers will have less input as to how proceeds are divided. Stein of Schulte Roth recalled a case he worked on while an assistant U.S. attorney. Southern District Judge Shira Scheindlin assigned a special master to allocate the forfeited assets. A similar move here would take away much of the control Adelphia would possess should it prevail in bankruptcy court because the assets would belong to the government. A master could divide assets among the company and defrauded shareholders, making it nearly impossible for Adelphia to include it in a sale. Likewise, lawyers in shareholder suits would not be able to structure a settlement according to terms favorable to their clients’ interests.

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