Adelphia must pony up $715 mil prior to TW/Comcast sale
NEW YORK — Marking the largest forfeiture for individuals in U.S. corporate history, the Rigas cable clan will turn over more than $1.5 billion in assets for bilking their company Adelphia.
Personal spending spree on the cabler’s dime saw patriarch John Rigas pay $25 million for forest rights to protect the view from his ranch, among many other extravagances.
Announcing the massive settlement on Monday, the Justice Dept. and Securities and Exchange Commission said they would transfer cable systems included in the Rigas assets back to Adelphia. Systems were operated under the Rigas banner but managed by Adelphia.
In turn, Adelphia will pay the feds $715 million — second only to the $750 million WorldCom settlement — to settle all charges.
Adelphia chair-CEO Bill Schleyer said the settlement was “the price we must pay to protect against the much larger potential harm of leaving the government claims and fate of the managed cable entities unresolved.”
Timing is sweet for Time Warner Cable and Comcast, which late last week won their joint $17.6 billion bid to buy Adelphia. With the SEC’s investigation of the Rigas family concluded, they face one fewer roadblock to closing their deal. They will take over the Rigas systems, which rep about 215,000 customers, when acquiring Adelphia.
Attorney General Alberto Gonzales said Adelphia’s $715 million settlement will be used to establish a fund for those hurt by the Rigas’ fraud while running Adelphia. He said details of the Adelphia Victim Compensation Fund, to be jointly administered by the DOJ and SEC, will be disclosed at a later date.
Gonzales said the Rigas forfeiture, which will take 95% of the family’s wealth, applies to all members of the family who were joint owners of Adelphia.
‘Day of justice’
“When John and Timothy Rigas were found guilty by a jury last summer, it was a day of justice for corporate corruption. Today is a day of restitution for victims of corporate corruption,” Gonzales said at a briefing in Washington, D.C.
The SEC and U.S. Attorney’s Office for the Southern District of New York said the forfeiture order brings the investigation against John Rigas and his three sons, Timothy, Michael and James, to a conclusion.
The Rigas cable systems included in the $1.5 billion forfeiture are valued at $700 million-$900 million, Gonzales said. The forfeiture order also includes $567 million in personal assets and $10 million from real estate owned by various Rigas family members.
Gonzales reminded reporters that John Rigas’ arrest — memorialized when he was forced to do the “perp walk” outside his plush New York apartment — helped to kick off a new era of corporate accountability.
Pair await sentencing
John and Timothy Rigas, who await sentencing, were found guilty last summer on charges relating to the embezzlement of $1 billion, hiding $2.3 billion in debt and deceiving investors. Michael Rigas also was charged but was acquitted after a jury deadlocked. It wasn’t immediately clear which other members of the Rigas family signed the forfeiture order.
The Rigases were accused of turning Adelphia, founded by John Rigas in the early 1950s, into their own personal “piggy bank.”
The SEC charged that the Rigases concealed rampant self-dealing, including the undisclosed use of corporate funds for purchases of Adelphia stock and luxury condominiums; fraudulently excluded billions of dollars in liabilities from the company’s consolidated financial statements by hiding them on the books of off-balance sheet affiliates; and falsified operating statistics and inflated earnings to meet Wall Street estimates.
Gonzales stressed that Adelphia won’t be prosecuted for the actions of its executives.
Time Warner chair-CEO Richard Parsons hinted as much last week when announcing that Adelphia had formally accepted the $17.6 billion joint bid submitted by TW Cable and Comcast. Deal, which has won the blessing of a federal bankruptcy judge, must still be ratified by Adelphia’s creditors and approved by Washington regulators.
The official equity committee repping Adelphia investors issued a statement Monday commending the federal prosecutors and the SEC for holding “the perpetrators of this massive fraud” accountable.
“Adelphia’s shareholders suffered billions of dollars in losses, and we are pleased that the government’s announced settlement will create a mechanism that will begin to compensate shareholder victims for those losses,” said attorney Peter Morgenstern of Bragar Wexler Eagel & Morgenstern, who represents the committee.
Gonzales said the management team installed to run Adelphia after the company filed for bankruptcy cooperated fully with the SEC and federal prosecutors.
Under the terms of the $715 million settlement to be paid by Adelphia, the government will obtain through forfeiture and then transfer to Adelphia all Rigas cable systems minus two small companies in Coudersport and Emporium, Pa. Those systems are valued at $7 million-$10 million. Government will allow members of the Rigas family other than John and Timothy to keep them.
The attorney representing the Rigas family could not be reached for comment.
On March 21 Time Warner settled SEC allegations of accounting violations at AOL, after having resolved Justice Dept. criminal charges last year, without admitting or denying wrongdoing. Time Warner’s total settlement came to $510 million.