Adelphia’s Founder, Two Sons Charged with Fraud

The founder of Adelphia Communications Inc. and his two sons were arrested today in Manhattan and face federal charges for allegedly pilfering cash from the bankrupt cable company at the expense of shareholders and creditors.

A nine-count criminal complaint filed against 77-year-old John Regas, and his sons Timothy and Michael, allege conspiracy, securities fraud, wire fraud and bank fraud. The complaint also alleges the Regas family “looted Adelphia on a massive scale, using the company as the Rigas family’s personal piggy bank.”

Regas founded the company in the 1950s with the $300 purchase of a small cable company, and has helped it to grow into a company that provides an array of entertainment and communication services, including high-speed Internet services, cable entertainment, digital cable, long-distance telephone services, home security, messaging and more. According to the company’s Web site, it serves more than 5.5 million customer.

The criminal allegations combined make up the latest example of corrupt corporate governance rupturing the nation’s confidence in the ethics of its business leaders.

Two other former Adelphia executives also are charged in the indictment and have been apprehended: James R. Brown, former vice president of finance, and Michael C. Mulcahey, the former director of internal reporting.

If convicted of bank fraud, the most serious of the felony charges, the defendants could face up to 30 years in prison. Conspiracy and wire fraud carries a maximum sentence of five years in prison and a $250,000 fine, and securities fraud carries a maximum sentence of 10 years in prison and a $1 million fine.

Pennsylvania-based Adelphia, the country’s sixth largest cable company, filed for bankruptcy protection last month. Adelphia came under fire after the company disclosed loans it guaranteed to partnerships controlled by the Rigas family.

The complaint filed Tuesday in Manhattan federal court charges that during the past three years the defendants “participated in an elaborate and multi-faceted scheme to defraud the public in connection with the financial affairs of Adelphia,” according to a release the U.S. Attorney’s Office for the Southern District of New York issued.

Federal prosecutors allege that executives masked Adelphia’s financial performance through misleading accounting practices and tapped the company’s funds and posh resources for their personal benefit without disclosure to the public or the board of directors.

Among some of the allegations:

* John Rigas received more than $67 million in undisclosed loans from Adelphia, and in 2001 and 2002 he received undisclosed cash payments from the company totaling at least $1 million per month.

* The Rigas family used more than $252 million in Adelphia funds to pay margin calls against loans to the Rigas family.

* The Rigas family tapped at least $13 million of Adelphia’s coffers to build a golf course on land John Rigas primarily owned, and he routinely used Adelphia’s corporate aircraft and the company’s Manhattan apartments for personal affairs without reimbursing Adelphia.

The Securities and Exchange Commission also has filed a civil complaint against the five men in what the agency dubbed “one of the most extensive financial frauds ever to take place at a public company.”

In its complaint, the SEC charges that the defendants fraudulently excluded billions of dollars in liabilities from its consolidated financial statements by concealing them on the books of off-balance sheet affiliates; falsified operations statistics and embellished earnings to meet Wall Street's expectations; and hid widespread self-dealing by the Rigas family, including the undisclosed use of corporate funds for the family’s stock purchases and the acquisition of lavish condominiums in New York and elsewhere.

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