If you were a banker underwriting a big loan to Adelphia Communications, you called Jim Brown. If you were an investment banker crunching a financial model in preparation for Adelphia's takeover of another cable operator, you called Jim Brown. If you were a Wall Street analyst fishing for details on Adelphia subscriber growth, you called Jim Brown.
For years, Brown was the go-to guy for financial players that had given Adelphia billions of dollars to finance acquisitions, system upgrades and—as it turned out—a golf course for the Rigases, the family that controlled the cable company. His was a pivotal role that put him in the middle of the day-to-day flow of what prosecutors contend is one the biggest insider-dealing corporate frauds ever. He was the key contact to outside financial players in large part because his boss, Adelphia CFO Tim Rigas, notoriously refused to return calls even of bankers he retained to raise him money.
"Nothing got started without him," said one Wall Street executive involved in many financings with Adelphia. "He was parceling out the amount of bank loans—and fees—to different bankers and investment bankers. He was the beginning, middle and end of the liaison to Wall Street."
And on Thursday, Brown agreed to sing.
Brown, formerly vice president of finance for Adelphia, pleaded guilty to federal charges of securities fraud, bank fraud and conspiracy in advance of the collapse of Adelphia. It was a cooperating plea agreement, with his ultimate sentence hinging on how much he helps the U.S. Attorney's office prosecute his former colleagues: Adelphia's ex-Chairman John Rigas, ex-CFO Tim Rigas, ex-COO Michael Rigas and former Director of Internal Reporting Michael Mulcahey.
Brown, 40, told U.S. District Judge Leonard Sand that he conspired with other company officials to cheat investors. He acknowledged overstating Adelphia's earnings and subscriber counts and lying to debt-rating agency Moody's and several banks in a meeting last January.
"I knew that such misstatements, if accepted as true, would mislead analysts who have followed the cable industry, as well as investors who purchased and sold shares of Adelphia's common stock," said a relatively relaxed Brown.
In a nod to the perks of his former job, Brown arrived at a Manhattan courtroom carrying a black gym bag bearing the green logo of First Union, one of the banks he says he helped Adelphia defraud.
Brown was never accused of the kinds of largess indulged in by the Rigas family: like the golf course on family land, using company credit to borrow $2.3 billion to buy cable systems and Adelphia stock, or John Rigas's $1 million monthly cash allowance from company checking accounts.
Still, Brown's cooperation offers a huge boost to prosecutors. The Rigases are not being prosecuted merely for mismanaging Adelphia into bankruptcy. A big portion of the fraud alleged in their indictment charges that they misled bankers and investors about Adelphia's financial condition. With the Rigas family so insular—as rich as they once were, the Rigas sons still lived in their parents' home—flipping a non-family executive could give prosecutors a voice to describe what the Rigases said about various insider deals and loans on a day-to-day basis.
Certainly, there's huge documentary evidence in the case. Defense lawyers say they're only part of the way through the discovery process and are already dealing with millions of paper and electronic documents. Unless there's a lot of sloppy e-mail floating around, though, documents don't tell you intent.
"I think Brown cracking is critical," said Jacob Frenkel, a former SEC prosecutor and a white-collar crime lawyer for Smith, Grambel & Russel who has followed the Adelphia case. "Now you have an insider, one who knows what happened and what was said."
Tim Rigas's attorney, Paul Grand, minimized Brown's plea. "The fact he pleaded guilty may mean that he's guilty. That may not mean that anyone else is guilty. ... Assuming that he committed sins on behalf the company, that doesn't mean anyone else is guilty of those sins unless they participated in the company."
Brown left the court, free until his April 14 sentencing hearing. As he picked up a cell phone he had checked earlier at Manhattan court's security office, he spotted a bulletin board with the funeral details of a recently deceased court staffer. The location: Adelphia, N.J. "What are the chances of that?" an amused Brown remarked.
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