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Adelphia jailed Original Source Link: (May no longer be active)
http://story.news.yahoo.com/news?tmpl=story&u=/ap/20020725/ap_on_bi_ge/adelphia_arrests_21http://story.news.yahoo.com/news?tmpl=story&u=/ap/20020725/ap_on_bi_ge/adelphia_arrests_21
Ex-Adelphia Executives Arrested
Thu Jul 25, 5:01 AM ET
By BILL BERGSTROM, AP Business Writer
The arrest of the founding family of Adelphia Communications adds to a string of blows to the cable company — the delisting of its stock, a bankruptcy filing and now a Securities and Exchange Commission ( news - web sites) lawsuit.
Adelphia portrayed the arrests as helping to put a sordid chapter of company history behind it, and filed its own racketeering lawsuit against the former executives.
But some experts say the federal prosecution will likely be just one more in a slew of legal entanglements that will ensnare the company, its founders and former executives and shareholders for years.
Former chief executive John Rigas, 78, and sons Timothy, 46, and Michael 48, were arrested Thursday in New York and charged with nine counts of conspiracy to commit securities fraud, wire fraud and bank fraud. They are accused of stealing hundreds of millions of dollars from the nation's sixth-largest cable company, costing investors more than $60 billion.
Two other former executives — James Brown, 40, and Michael Mulcahey, 48 — were arrested on similar charges at their homes in Pennsylvania.
Peter Fleming, a lawyer for John Rigas, called his client "an extremely decent man" and a lawyer for Michael Rigas declined to comment. Defense attorney Thomas York said he expected both Brown and Mulcahey to plead innocent.
The defendants could get up to 30 years in prison and millions in fines if convicted of the most serious charges. The Rigases were freed on $10 million bail apiece, secured by cash plus land and other property. Brown and Mulcahey were released on their own recognizance.
In addition to the criminal charges, the SEC filed a lawsuit and called the case "one of the most extensive financial frauds ever to take place at a public company." The SEC is seeking restitution, fines and an order barring the defendants from ever heading a company.
The arrests follow months of turmoil surrounding Adelphia, a Coudersport, Pa., company with 5.7 million cable subscribers in more than 30 states.
The Justice Department ( news - web sites) and SEC actions came less than four months after Adelphia disclosed billions of dollars in off-the-books debt incurred by the Rigas family. The company filed for bankruptcy protection last month.
"These (charges) were brought quicker than, say, Enron or WorldCom, but this is going to be a simpler case," Columbia Law School Professor John Coffee said. "It's a matter of putting a hand in the till, instead of proving accounting irregularities."
Bankruptcy attorney Richard Tilton said that while bankruptcy law shields the corporation from lawsuits by shareholders and creditors, who must line up in Bankruptcy Court with other claimants, it doesn't bar legal reprisals by the SEC.
Requesting civil penalties against a public company is unusual because "such a penalty is typically felt by the shareholders who have already been victimized," SEC enforcement director Stephen Cutler said. He said the agency did so "given not only the scope of the wrongdoing but also Adelphia's lack of cooperation during the investigation."
Coffee said federal authorities want to prove a point.
"I just think it's symbolic: They want to show that bankruptcy won't deter them," the professor of corporate law said.
And in Adelphia's case, he predicted that penalties may take the form of restrictions or unusual requirements imposed on the board rather than financial penalties that would be "just sort of bombing the rubble."
Adelphia shareholders have seen the value of their holdings evaporate as the stock slid from $38 a share a year ago to 15 cents in over-the-counter trading Wednesday.
SEC officials said the case stood out even among other recent accounting scandals.
"This case is a pretty striking combination of the kind of financial and accounting fraud that we've seen in other cases ... coupled with an extraordinary level of feeding at the trough of this company's assets," said Wayne M. Carlin, director of the SEC's Northeast Regional Office in New York.
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On the Net:
Adelphia: http://www.adelphia.com/
SEC: http://www.sec.gov/
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