Determined to recoup losses incurred in the cable industry’s biggest financial scandals to date, Adelphia Communications and its bond holders are seeking retribution from the company’s 450-plus banks, including blue chips JPMorgan Chase, Barclays, Bank of America, Wachovia and Citigroup, for extending bad loans to the founding Rigas family.
Those loans, the plaintiffs claim, effectively allowed founder John Rigas and certain members of his family to commit fraud by draining company coffers before Adelphia was compelled to declare bankruptcy last June.
Similar suits have been lodged against banks by shareholders and creditors in scandal-ridden horror stories like Enron and Worldcom, claiming that the lenders were responsible for the corporate wrongdoing.
$5 bil damages claimed
According to the suit, filed Sunday in a U.S. bankruptcy court in the Southern District of New York, plaintiffs claim that the banks are accountable for some $5 billion in damages for providing credit to the Rigas family, who defrauded the company. Suit claims that the banks made no effort to recognize the “corporate separateness and disparate financial resources of the debtors and entities owned by the Rigas family.” Specifically, plaintiffs want to disqualify $3 billion in bankruptcy claims by these banks.
The company carries some $18 billion in debt and is trying to reorganize its capital structure under Chapter 11 protection. Adelphia family members are defending themselves against criminal charges of taking out loans and credit lines (up to $5.6 billion worth) secured against company assets for personal use.
Bondholders say the banks did not properly appraise the borrowers’ ability to repay the loans and therefore are partly to blame for the egregious loss of money.
Suit claims many of the banks that arranged the syndicated loans “merely rubber-stamped the co-borrowing facilities so that their investment banks could earn hundreds of millions of dollars in fees.”