No Surrender: Rigases Arrested

In an early morning raid in Manhattan on July 24, U.S postal inspectors carted away Adelphia Communications Corp. founder John Rigas and two of his sons — former Adelphia executive vice president of operations Michael Rigas and former chief financial officer Timothy Rigas — ending months of speculation on whether the former leaders of the crumbing cable empire would face criminal charges.

When the dust settled, the Rigases, along with former vice president of finance James Brown and former director of internal reporting Michael Mulcahey, were charged with nine counts of conspiracy, wire fraud and bank fraud by the U.S. Department of Justice. Brown and Mulcahey were arrested at their homes in Pennsylvania.

The charges are the result of a five-month investigation by the U.S. Attorney's Offices in New York and Pennsylvania.

According to New York U.S. Attorney James Comey, the Rigas family "looted Adelphia on a massive scale, using the company as the Rigas family's personal piggy bank," misleading investors and creating sham transactions to hide the company's true financial health.

The high-profile arrest — cable news channels appeared to be running footage of John Rigas being led away from his daughter Ellen's Manhattan apartment in handcuffs in a continuous loop — was just the tip of the iceberg.

After the feds arrested and charged the Rigases, the Securities and Exchange Commission and Adelphia itself filed respective civil lawsuits against the former executives.


The Adelphia suit seeks about three times what it says the Rigas family took improperly. The SEC suit did not spell out a dollar amount, but SEC enforcement director Stephen Cutler said at a Washington press conference that it could be in excess of $1 billion.

The SEC suit seeks disgorgement of the Rigases' ill-gotten gains and to ensure that the family never runs a public company again.

"This case presents a deeply troubling and all-too-familiar picture of greed and deception at a large public company," the SEC's Cutler said. "It is a case about betrayal — the betrayal of shareholders by executives who put their own interests and their own pocketbooks first."

At the arraignment in New York, lawyers for the Rigases took exception to the way their clients were taken into custody. Both Fleming and Jeremy Temkin, Tim Rigas's attorney, said they had tried to surrender their clients voluntarily, but were rebuffed by the government.

"It's pretty tough to arrest a 78-year-old man at six o'clock in the morning when he has volunteered to surrender," Fleming said.

"John Rigas strikes me as an extraordinarily decent man," the lawyer continued. "He's never sold a share of Adelphia stock, therefore he never profited from the sale of Adelphia stock. He's 78 years old, he's had a triple bypass [operation] and he offered to surrender himself at any time."


Temkin also said that his client had offered to surrender to law-enforcement officials on several occasions, only to be rebuffed. He also hinted that the fanfare surrounding the arrests may have been politically motivated.

"The fact was that they had a press conference in Washington," Temkin said. "Draw whatever inferences you want from that. There was no need for an arrest."

Industry sentiment for the Rigases was mixed. While many MSO executives expressed sadness for John Rigas personally, others were angry at the bad light his actions have cast on the industry.

"I hope they hang," said one industry executive who asked not to be named.

Another MSO official, who also requested anonymity, said that his anger has grown exponentially as more information about the Rigases' self-dealing has been released.

"It's really hard to look at a history like they wrote of abusing shareholder funds, to feel a whole lot of empathy when they tried desperately for their own face-saving purposes to turn themselves in so they don't have to do it in front of a camera," the MSO official said. "Now you hear people saying that maybe the feds were a little tough.

"Sorry guys, you had plenty of opportunity to decide whether you wanted to put yourselves in a compromising situation. Start paying the price."


The SEC suit was nearly identical to the federal's government claim, with one exception. Among those charged by the SEC were Adelphia's former executive vice president of strategic planning — and another Rigas son — James Rigas.

Mike Kulstad, a spokesman for the U.S. Attorney's Office in Manhattan, declined to comment when asked why James Rigas was left out of the Department of Justice complaint.

"The investigation is ongoing," Kulstad said.

For weeks, the industry had expected indictments from two federal juries in New York and Pennsylvania that have been investigating Adelphia and the Rigas family since May 17.

But while no indictments have been handed down yet, the Rigases' attorneys anticipate they will come soon.

"We expect an indictment will be filed at some time," said Peter Fleming, the attorney representing John Rigas. "Then the jury can determine who is right and who is wrong."

For the time being, the Rigases will have to play a waiting game.

Released hours after being arrested on July 24 — after agreeing to post a $10 million personal recognizance bond — the next step for the defendants will be a preliminary hearing scheduled for Aug. 23 in U.S. District Court in Manhattan.

Adelphia brought up most of the charges in earlier SEC filings, mapping out a litany of self-dealing transactions by the Rigases that helped sink the sixth-largest U.S. MSO.

But the U.S. Attorney's complaint also brought some new allegations to light, including Tim Rigas's use of a company plane to take himself and a friend to Africa on a safari vacation, and John Rigas's withdrawal of $1 million a month from company accounts for his personal use.

In total, the elder Rigas is accused of taking about $62 million from Adelphia's coffers for himself.


What makes those withdrawals even more bizarre is that they were set up by Tim Rigas to curb his father's spending.

According to the complaint, in early 2001 Tim Rigas advised Mulcahey that John Rigas "had been spending unacceptably large amounts of Adelphia funds."

At that point, Tim Rigas informed Mulcahey that any request by John Rigas to wire more than $1 million per month to his personal account required Tim's approval.

"How the hell do you spend $1 million a month?" said one MSO executive who asked not to be named. "This is really bad stuff."

At the time, John Rigas was drawing a salary of $1.9 million per year.


While industry observers once marveled at the way an old-time cable operator had grown — John Rigas started the company in 1952 with $300 from an overdrawn bank account — according to the federal complaint, Adelphia was a house of cards that finally succumbed to the weight of its owners' greed.

Adelphia filed for Chapter 11 bankruptcy protection on June 25, listing liabilities of $18.6 billion.

Shocking revelations about Adelphia's business and accounting practices and rampant self-dealing by the Rigas family have become almost a weekly event since the company first revealed it had $2.3 billion in off-balance sheet debt on March 27 — a figure that's since ballooned to $3.1 billion.

The federal complaint not only details how the Rigases routinely used company funds for their own personal gain, it also shows that Adelphia's officers engaged in a complicated practice of manipulating data to make it appear that the MSO was reaching its financial targets.

According to the Department of Justice complaint, Tim Rigas and Brown routinely met before Adelphia's scheduled quarterly earnings announcements to figure out new ways to cook the books.

Among the alleged practices: Rigas and Brown would determine a target number for Adelphia's quarterly cash flow and "would attempt to justify that figure by creating backdated, sham transactions between Adelphia and Rigas family entities."

According to the complaint, Adelphia would book money allegedly received from those family entities as revenue — mainly management fees for family-owned cable systems that were never received.

In addition, the two also routinely beefed up subscriber numbers by counting cable customers in systems in Brazil and Venezuela in which Adelphia owned only a minority interest, or by counting customers who had signed on only for high-speed Internet service as video subscribers.

According to the complaint, Adelphia had not met industry benchmarks for subscriber growth, cash flow or revenue growth since at least 1999, but fudged the numbers so as not to fall out of favor with Wall Street.


Sitting between his two sons in U.S. District Court in Manhattan, John Rigas looked unusually frail as he sat silently and listened to U.S. Magistrate Gabriel Gorenstein inform him of his rights and the charges against him.

Dressed in nearly identical blue blazers — minus ties, shoelaces and belts, as is standard procedure — the Rigases appeared to be tired but displayed little emotion about their current predicament.

But despite outward appearances, the Rigases face stiff penalties if convicted on all counts, up to 95 to 100 years combined — up to 20 years each.

At the arraignment in New York last week, the Rigases cut a deal to be released on $10 million bail.

According to the agreement, hammered out earlier between Rigas family lawyers and U.S. Attorneys, Michael and Tim Rigas agreed to put up $500,000 in cash or securities, with John Rigas agreeing to put up $1 million in cash or securities.

In addition, bail was secured by the family's condominiums in Beaver Creek, Colo., (estimated value: $2.4 million) and Hilton Head, S.C., (estimated value: $3.3 million); the family home in Coudersport, Pa. (estimated worth: $700,000); and 5,000 acres of land in Coudersport. The Rigases also agreed to surrender their passports and restrict their travel to the states of New York, New Jersey and Pennsylvania.

Brown and Mulcahey were released on their own recognizance.