The new managers at troubled Adelphia Communications on Friday revealed a long list of insider dealings by the cabler’s founding family that reads like a bible of fraudulent corporate accounting.
The Rigas family, which founded Adelphia in 1952 and ran it until several weeks ago, used the company as a private candy store to back loans so family members could buy the Buffalo Sabres, fund the motion picture “SongCatcher” and build a golf course — for starters.
Investors will be glad for some clarity on Adelphia’s contorted finances. But the tell-all filing put out by a group of independent directors running the cabler now is certain to add fuel to shareholder lawsuits and current probes under way by the Securities and Exchange Commission and two grand juries.
The SEC filing stipulates that a three-year, $4.2 million severance package granted to Adelphia founder and former chairman-CEO John Rigas “shall immediately terminate in all respects upon the conviction of John Rigas of any felony.”
The Philadelphia law firm of Spector, Roseman & Kodroff said Friday it will amend the class action suit it filed against Adelphia to include the latest revelations. Suit on behalf of shareholders was filed in U.S. District Court for the Eastern District of Pennsylvania.
John Rigas’ sons Tim, Michael and James and his son-in-law Peter were also officers of the company.
They’ve got lots to explain. Adelphia paid Rigas-owned ventures nearly $15 million last year for furniture and landscaping. It paid huge fees to officers of Adelphia-owned investment firm Praxis Capital, run by John Rigas, Tim Rigas and Peter Venetis.
Publicly-traded Adelphia handed out personal loans to the Rigases and paid for travel and rent. John Rigas’ daughter Ellen Rigas-Venetis and her husband Peter have lived for free since 1998 in a company-owned apartment in New York City. The special committee of directors is also looking into family condos in Boulder, Colo., and Cancun, Mexico.
Rigas-Venetis is a singer-songwriter who runs ErgoArts and owns it in partnership with her father. Both also have equity interests in SongCatcher Films. “In 2001 and possibly in prior periods, the company advanced funds to ErgoArts and SongCatcher Films on an unsecured basis and without approval from the company’s board,” the filing said. At year’s end, the shingles owed Adelphia, respectively, $677,000 and $3 million.
The filing said Adelphia may have been snookered out of $8 million it was due for consulting services to Rigas-owned Highland Prestige. Another Rigas entity, Highland Holdings, paid Adelphia $4 million for services rendered but may have used money borrowed under an Adelphia-backed loan.
At the end of last year, the maximum amount available to be borrowed under these co-borrowing agreements was $5.63 billion. As of last month, $4.58 billion was outstanding under the facilities. Adelphia has agreed to put $2.5 billion of that on the books in its 2001 financial report, which has still not been released.
The filing was an effort by the special committee to clean the slate and try to keep Adelphia out of bankruptcy court. The committee announced last Thursday a set of remedies to make Adelphia whole, including the resignation from management and the board of all Rigas family members and a transfer of cash plus assets worth $1 billion from the family to the cabler.
The filing said, “Unless noted otherwise, you should not assume that” transactions described were approved by the board or “were the product of arm’s length negotiations between the parties.” It warned shareholders not to assume that transactions “that would commonly be settled in cash were settled in that manner.”
Filing described a questionable “cash management system” that mingled Adelphia’s money with cash from Rigas entities, including funds that were borrowed with Adelphia as a backer. The pot was used by related parties for capital spending and debt repayment and general expenses. Some $241 million was used by Rigas entities to pay margin calls. The entities had pledged Adelphia equity and debt securities to back margin loans from various investment banks.