Adelphia Charges Deloitte & Touche with Negligence in Scandal

Adelphia Communications Corp. has filed a lawsuit against its former auditor Deloitte & Touche LLP for its alleged role in a massive fraud on par with the scandals that toppled Enron Corp. and WorldCom Inc.

Filed Wednesday, the suit charges Deloitte & Touche with “professional negligence, breach of contract, fraud and other wrongful conduct.”

In a statement issued yesterday, Deloitte & Touche said it has not seen the suit and was unable to comment on the specific allegations.

However, the accounting and auditing firm noted suspending its audit of Adelphia in May, urging the company’s audit committee to conduct an investigation as Deloitte & Touche “believed that certain of the matters included in the list of open items represent possible illegal acts that could be material to the company’s financial statements.”

“Although there was a special committee of the company conducting the investigation, they refused to share material information with us about the investigation while at the same time urging us to resume our audit,” the accounting firm added. “To the extent that there was fraud by people at the company, the purpose was to deceive Deloitte as well as the public.”

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

Federal prosecutors have charged Adelphia founder John Regas and his sons Timothy and Michael with several counts of fraud, alleging in a complaint the family “looted Adelphia on a massive scale, using the company as the Rigas family’s personal piggy bank.” Two other Adelphia executives also have been charged in an indictment.

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

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.”

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