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Brown Pleads Guilty, Implicating Rigases

New York— Coming soon to a courthouse, possibly near you: James Brown sings.

James R. Brown, the former vice president of finance at Adelphia Communications Corp., cut a deal last week with federal prosecutors, pleading guilty to conspiracy, securities fraud and wire fraud in exchange for his testimony against his former co-defendants, Adelphia's founding Rigas family.

Brown was indicted along with former Adelphia chairman John Rigas, chief financial officer Timothy Rigas, former executive vice president of operations Michael Rigas and former assistant treasurer Michael Mulcahey in September on 24 counts of conspiracy, securities fraud, bank fraud and wire fraud.

In the indictments, the government accused the Rigases of looting Adelphia for their own personal gain. The scandal helped drive the Coudersport, Pa.-based company into bankruptcy. The company also sued the Rigases and the other executives, charging them under the Racketeering Influenced and Corrupt Organizations (RICO) Act.

At the time, all of the defendants said they were innocent of the charges.

Guilty plea

But Brown changed his tune in federal court last Thursday, admitting that he and other company executives agreed to make false statements misrepresenting Adelphia's finances, its earnings and its number of cable subscribers.

Brown added that he and other executives also attended a meeting with representatives of credit rating agency Moody's Investors Service on Jan. 18, 2002, and made false statements that were "intended to mislead banks that had established credit facilities with Adelphia and its subsidiaries."

Brown and other executives also helped manipulate Adelphia's earnings to make it appear as if the company was in compliance with its credit agreements "when in fact it was not," he said.

Although Brown did not mention names in his initial statement to the court, after conferring with his attorney, Jonathan Bach, and assistant U.S. Attorney Timothy Coleman, Brown told U.S. District Judge Leonard Sand that the other executives mentioned in his statement include the Rigases and Mulcahey.

Brown and Bach declined comment as they left the courtroom.

In a statement, Adelphia said that Brown's plea "further confirms what has been alleged by Adelphia in its lawsuits: The Rigases and their accomplices engaged in massive self-dealing and other wrongful conduct that severely damaged Adelphia."

The company said it continues to cooperate with the U.S. Attorney's investigation.

A key figure

Brown could be a key figure in the government's case against the Rigases. As Tim Rigas's top lieutenant, he was privy to most of the self-dealing arrangements that prosecutors allege were made by the Rigas family.

They include doctoring Adelphia's books and inventing cash-flow growth rates and subscriber figures at meetings with Tim Rigas in a Coudersport diner before Adelphia's quarterly conference calls.

Many industry observers had been expecting Brown to cut a deal with the feds. Most believe his testimony could be highly damaging to the Rigases' case.

"It is very damaging when an insider is willing to testify," said former federal prosecutor Stephen Ryan, now a partner in the Washington, D.C., law firm of Manatt, Phelps & Phillips. "It's not a good thing. Whenever you're drinking from the same water cooler as someone who is cooperating with the government, you're in trouble."

Attorneys for John Rigas declined comment.

Paul Grand, an attorney for Timothy Rigas, said Brown's plea does not mean his client is guilty as well.

"His [Brown's] guilty plea may mean that he's guilty, but it certainly doesn't mean anybody else is guilty," Grand said. "Tim intends to go to trial."

Typically in these cases, Ryan said, the defendant who cut the deal has already submitted his testimony to prosecutors and they are pleased with what they've heard.

He also said it was unlikely any other defendants would reach as good an agreement as Brown.

"Generally, when somebody like this gets a deal and testifies, the government is not as nice to the next guy, or the next guy after that," Ryan said.

Surrenders assets

While most industry observers expect Brown to get little jail time, he is taking a financial hit as part of his plea agreement.

As part of the deal, Brown has agreed to surrender some personal assets as restitution: real estate in Potter County, Pa., and in Broome County, N.Y.; his 1998 BMW automobile and $45,000 in cash, representing about 90 percent of his liquid assets.

U.S. District Judge Leonard Sand set an April 14 date for Brown's sentencing. Brown faces a maximum of 45 years in prison and $1.5 million in fines, although he would hope to face less severe penalties after cooperating with authorities.

"If he pleaded to three counts, he's clearly going to do some time," Ryan said. "It's likely that you can't get involved in something with these sort of numbers under the sentencing guidelines without doing some time."

The Securities & Exchange Commission also has filed charges against the Rigases, Brown and Mulcahey.

Helene Glotzer, assistant regional director with the SEC's office in Manhattan, said Brown has agreed to a partial settlement that bars him from acting as an officer or director of a public company, and will provide a full accounting of his ill-gotten gains while he was at Adelphia. The SEC still wants Brown to return illegal profits and pay civil penalties.

Glotzer said that Brown has also agreed to cooperate in the SEC's investigation against the Rigases and Mulcahey.

Schleyer update

While the Rigases sweat out just what type of information Brown is going to provide, Adelphia is moving toward signing AT&T Broadband CEO Bill Schleyer as its new CEO.

Sources last week said Schleyer also wants to bring on AT&T Broadband chief operating officer Ron Cooper on at Adelphia in that same capacity.

According to sources familiar with the company, Schleyer and the company are in negotiations, and Adelphia expects to have a contract before the end of the month.

Schleyer, who joined AT&T Broadband in October 2001 after being out of the industry for several years, won't come cheap.

According to AT&T's 2001 proxy statement, Schleyer's employment agreement calls for him to receive an annual salary of $925,000 and a guaranteed bonus of not less than 100 percent of his salary. That was double the salary and bonus that former Broadband CEO Dan Somers received, and is about on par with the $1.9 million in salary and other compensation John Rigas officially earned in his last full year with the company.

Rumors have been circulating within the cable community that Schleyer was interested in moving Adelphia's headquarters to Denver if he accepted the job.

While Denver is a major metropolitan area — and the home base for several former cable executives that Schleyer could tap into — some sources said a move would be difficult. One source close to the company said that moving the headquarters from Coudersport was not on the table now, mainly because of the costs involved. With the bankruptcy court required to approve virtually every Adelphia expenditure, it was seen as unlikely such a relocation would pass muster.

In addition, some executives wondered why Schleyer, who has been traveling weekly to Denver from his home in New Hampshire, would want to continue that brutal commute.

Schleyer has lived with his family in New Hampshire for more than 20 years. In an interview last year with The Philadelphia Inquirer, Schleyer said it would be hard to leave that state.

Adelphia's interest in Schleyer as CEO was first reported in last week's Multichannel News.