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Adelphia, U.S. Settle For $715 Million

Founder, Family to Compensate Shareholders

By Carrie Johnson
Washington Post Staff Writer
Tuesday, April 26, 2005; Page E01

Adelphia Communications Corp., the nation's fifth-largest cable television company, yesterday agreed to pay $715 million to settle federal investigations stemming from rampant earnings manipulation and self-dealing by its corporate founders.

U.S. Attorney General Alberto R. Gonzales said prosecutors agreed not to file criminal charges against the company as part of the deal, which seeks to compensate shareholders who lost millions of dollars when the Greenwood Village, Colo., firm filed for bankruptcy protection in 2002.


John J. Rigas and his family will surrender assets to firm.

The settlement also resolves pending criminal forfeiture charges against Adelphia's onetime leaders. A federal jury convicted Adelphia founder John J. Rigas and his son, finance chief Timothy J. Rigas, of multiple fraud and conspiracy charges last year. Another son, Michael J. Rigas, will be retried later this year after a jury deadlocked on related criminal charges filed against him.

Government officials said the Rigas family has agreed to hand over to Adelphia more than 95 percent of its assets, including at least $700 million in privately owned cable television systems, $567 million in Adelphia subordinated notes, and $10 million in real estate as part of the deal. Adelphia then will turn around and pay the government about half that amount.

Prosecutors and regulators at the Securities and Exchange Commission, which also took part in the settlement, said the Rigases had wrongfully appropriated corporate funds for their own use and failed to pay Adelphia for securities they controlled.

The agreement still requires the approval of a bankruptcy court judge and the New York federal judge who is scheduled to impose a criminal sentence on John and Timothy Rigas on June 1. Both men face the prospect of extensive prison time.

"Today is a day of restitution for the victims of corporate corruption," Gonzales said.

The financial terms of the deal are contingent on Adelphia emerging from bankruptcy protection, probably sometime within the next 12 to 18 months. Only then will funds be distributed to victims of the long-running fraud, regulators said.

"This tentative settlement is the product of lengthy negotiation and compromise, and it is the price we must pay to protect against the much larger potential harm of leaving the government claims . . . unresolved," Adelphia chief executive William T. Schleyer said in a prepared statement.

Adelphia said the ultimate composition of the payment depends on the fate of its $17.6 billion purchase by Time Warner Inc. and Comcast Corp., announced last week. If the sale goes through with the approval of regulators and the bankruptcy court, Adelphia said it will pay the government $600 million in cash and stock and $115 million more in future proceeds from lawsuits the company has filed against "third parties who injured Adelphia," including former auditors at Deloitte & Touche LLP.

Investigators called the settlement among the largest they had ever reached with individuals in a business fraud case. They said the deal was a good one for investors because they were able to secure the return of assets controlled by other family members who had not been charged with crimes, including matriarch Doris Rigas, daughter Ellen R. Venetis and son James P. Rigas.

A lawyer for the Rigas family did not return phone calls yesterday.

Mark K. Schonfeld, director of the SEC's Northeast regional office, said the deal helped resolve "one of the most complicated and egregious financial frauds committed at a public company."


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