The US Securities and Exchange Commission (SEC) has filed charges against Adelphia Communications, its founder John J. Rigas, his three sons and two senior executives in one of the most extensive financial frauds ever to take place at a public company.
In its complaint, the SEC charges that Adelphia, at the direction of the individual defendants, fraudulently excluded billions of dollars in liabilities from its consolidated financial statements by hiding them on the books of off-balance sheet affiliates.
It also charges that the company falsified operations statistics and inflated earnings to meet Wall Street’s expectations and concealed rampant self-dealing by the Rigas Family, including the undisclosed use of corporate funds for Rigas Family stock purchases and the acquisition of luxury condominiums in New York and elsewhere. The US Attorney’s Office for the Southern District of New York has also filed related criminal charges against several of the defendants.
In its lawsuit, filed in federal court in Manhattan, the SEC alleges that the defendants violated the antifraud, periodic reporting, record keeping, and internal controls provisions of the federal securities laws.
Adelphia is the sixth largest cable television provider in the US and, through various subsidiaries, provides cable television and local telephone service to customers in 32 states and Puerto Rico.
The SEC seeks a judgement ordering the defendants to account for and disgorge all ill-gotten gains, including all compensation received by the individual defendants during the fraud, all property unlawfully taken from Adelphia by the individual defendants through undisclosed related-party transactions, and any severance payments related to the individual defendants’ resignations from the company.
The Commission also seeks civil penalties from each defendant, and permanent injunctions against violating the securities laws. The Commission further seeks an order barring each of the individual defendants from acting as an officer or director of a public company.
‘This case presents a deeply troubling picture of greed and deception at a large, publicly-held company,’ said SEC Director of Enforcement Stephen M. Cutler.
Adelphia filed for bankruptcy protection under Chapter 11 on June 25, 2002.