Never a favorite in Washington, the cable biz is likely to duck and run for cover with the stunning arrest of the Rigas cable dynasty on charges of massive corporate fraud.
There’s hardly anything that makes a Capitol Hill lawmaker more mad than ever-increasing cable rates and the virtual monopoly the big cablers enjoy in many markets.
The federal charges brought last week against Adelphia founder John Rigas, two of his sons and two other former execs — all of whom held top slots at the country’s sixth-largest cabler — will give solons plenty of new ammo.
Over at the U.S. Dept. of Justice, antitrust attorneys are likely to give extra scrutiny to financial documents before signing off on the gargantuan Comcast/AT&T cable merger.And it’s also landed the entertainment biz a starring role in the corporate scandals rocking Wall Street.
The National Cable & Telecom Assn., which loves to boast of the cable industry’s prowess, had little choice but to distance itself from the Rigases. NCTA prexy-CEO Robert Sachs said in a statement that the charges against the five former Adelphia execs “pertain to the conduct of a few individuals in one company.”
But it might not be all that easy to escape the fallout, because if an industry icon like John Rigas can tumble so low — in such a short time — then anything is possible. He and his sons were dragged out of their tony Manhattan apartment in handcuffs in a dawn arrest rather than allowed the usual courtesy of surrendering to police. They were allowed out on bail of $10 million each.
The charges filed against John, Timothy and Michael Rigas by federal authorities read like a lurid bestseller. Also charged were James Brown, Adelphia’s former VP of finance, and Michael Mulcahey, former assistant treasurer, both arrested in Pennsylvania. They were allowed out on their own recognizance.
Adelphia, the nation’s sixth-largest cabler, filed for bankruptcy last month after ousting the five executives. Federal investigators say the Rigases, along with Mulcahey and Brown, inflated the value of the company through deceit.
Federal prosecutors allege that the defendants bilked the company of billions of dollars since at least 1999, diverted company funds to pay off personal loans, and lied to shareholders and Wall Street.
The Rigases also were charged with diverting billions from the company to pay for personal perks, including luxury condos at points around the globe, an African safari and, here in the States, a $13 million golf course constructed on land owned by the elder Rigas.
“In its wildest dreams, I bet Congress never imagined that the cause for higher cable rates was to finance the construction of private golf courses,” a cable watchdog said.
Indeed. Lawmakers have been sputtering mad for years about cable rates and the market lockhold enjoyed by the big cablers. Now, they could use the Rigas saga to call for more regulation.
In addition to the criminal suit, the Securities and Exchange Commission filed a separate suit, seeking millions in restitution.
President Bush said the July 24 arrests proved the White House was not afraid to be aggressive in routing out corporate evildoers.
On the same day, Capitol Hill leaders agreed to landmark legislation cracking down on corporate accounting practices and increasing penalties for corporate fraud. Measure, skedded for passage this week, sets up an independent board to monitor accountants.
And Wall Street responded with a rally of nearly 500 points on the Dow.
Over the years, John Rigas has hardly been a rogue figure in Washington. Widely respected, he’s given plenty of money to politicos, mostly to Republicans.
But when Washington politicians are out for blood, alliances can turn on a dime. Bush is well aware that the Republicans could lose the U.S. House of Reps to the Democrats.
In reaction to the arrests, several cable execs said they feel the biz has been singled out for harsh treatment, questioning why the Rigases were dragged away in handcuffs, with TV cameras on hand.
“No one at Enron ever had to do a perp walk,” says one agitated cable insider.