Adelphia Communications Corp. settled fraud charges with two federal agencies Monday, clearing the path to its pending sale to Time Warner Inc. and Comcast Corp. later this year.
According to a statement by the Securities and Exchange Commission, Adelphia has agreed to pay the Securities and Exchange Commission and the Department of Justice $715 million in cash, which will be placed in a victims’ fund to be established by the U.S. District Court and used to compensate investors hurt by the fraud.
As a result of the agreement, the SEC and DOJ have agreed not to prosecute Adelphia.
Also as part of the agreement, the Rigas family has agreed to surrender about $1.5 billion in assets to Adelphia, including its interests in various cable properties.
Adelphia filed for Chapter 11 bankruptcy protection in June 2002 after an accounting scandal surrounding the Rigases’ alleged fraud.
In July 2004, former Adelphia chairman John Rigas and his son, former chief financial officer Timothy Rigas, were convicted on 18 counts of fraud and conspiracy stemming from a scheme to bilk Adelphia out of hundreds of millions of dollars for their own personal use.
A third son, former executive vice president of operations Michael Rigas, was found not guilty of bank-fraud charges, but the jury could not reach a decision on securities-fraud charges against him.
John and Timothy Rigas are scheduled to be sentenced June 1. Michael Rigas is scheduled to be retried on the securities-fraud charges in October.
As part of the settlement, the Rigas family has agreed to surrender cable systems with 250,000 subscribers and worth $700 million-$900 million to Adelphia, as well as Adelphia bonds worth $567 million and $10 million in real estate assets, according to the SEC. Once Adelphia takes title to those assets, it will place the $715 million into the victims’ fund.
The Rigas family -- other than John and Tim -- will be allowed to retain ownership of the cable systems near their hometown of Coudersport, Pa., with less than 5,000 customers.
Adelphia had proposed in March to settle the government fraud charges by making a $725 million payment. It wasn’t clear at press time why the actual payment will be less.
The settlement clears one of the hurdles to the $17.6 billion sale of Adelphia’s cable assets to Time Warner and Comcast Corp.
Adelphia is still seeking $3.2 billion from the Rigas family. The DOJ has been seeking $2.5 billion in damages from the family.
Adelphia will make the settlement payment before it emerges from Chapter 11 bankruptcy protection, which is expected at the time the Time Warner-Comcast deal closes, in nine to 12 months.
“This settlement agreement presents a strong, coordinated approach by the SEC and the U.S. Attorney’s Office to resolving one of the most complicated and egregious financial frauds committed at a public company,” SEC Northeast regional office director Mark Schonfeld said in a prepared statement.
“The settlement provides an expedient and effective way to provide victims of Adelphia's fraud with a substantial recovery, while at the same time enabling Adelphia to emerge from Chapter 11 bankruptcy,” he added.
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