NEW YORK, July 8 -- A federal jury Thursday convicted Adelphia Communications Corp. founder John Rigas and his son Timothy, the former chief financial officer, of conspiring to loot the cable company of millions of dollars, a major victory in the government's battle to hold corporate leaders accountable for the excesses of the late 1990s.
John and Timothy Rigas were also convicted of bank and securities fraud. But the seven women and five men on the jury acquitted another Rigas son, Michael, of conspiracy and were undecided on the securities and bank fraud charges against him. A fourth former Adelphia executive, Michael C. Mulcahey, was acquitted on all counts. U.S. District Judge Leonard Sand then sent the jury home for the night.
The partial verdict came after eight days of deliberations and three-and-a-half months of testimony and arguments. Prosecutors alleged that the Rigas family siphoned off $100 million to fund personal extravagances, hid $2.3 billion in debt and systematically deceived investors about Adelphia's subscriber growth and its bottom line. Adelphia, which has moved its headquarters from Coudersport, Pa., to Colorado since declaring bankruptcy in June 2002, is the nation's fifth-largest cable company.
Legal experts hailed the convictions as a key benchmark for white-collar prosecutors. For the first time since Enron Corp. collapsed in December 2001, the chief executive of a bankrupt company has taken his case to a jury and been convicted.
"This conviction is bigger news that the indictment of [former Enron chief] Kenneth Lay," said former federal prosecutor Jacob S. Frenkel. "The Adelphia Corp. is the ultimate in corporate boardrooms out of control. . . . This is big-time looting of a public company."
Other high-profile convictions, such as those of former WorldCom Inc. chief financial officer Scott D. Sullivan and Rite Aid Corp. chief executive Martin L. Grass were the result of plea bargains. Credit Suisse First Boston investment banking star Frank P. Quattrone and entrepreneur Martha Stewart were convicted of far less serious obstruction offenses, and the trial of Tyco International Ltd. chief executive L. Dennis Kozlowski ended in a mistrial earlier this year.
John and Timothy Rigas each face a maximum of 30 years in prison on the bank fraud conviction, the most serious charge. But they will almost certainly get much less under the federal guidelines. Their sentencing date will not be set until the remaining charges are resolved. Sentencing may be complicated by a recent U.S. Supreme Court ruling that bans judges from handing out more prison time based on facts that were not considered by a jury, such as the number of victims or the total amount of the loss.
The Adelphia trial showcased the decades of experience in the U.S. Attorney's office in prosecuting complex white-collar cases. Prosecutors Richard Owens and Christopher Clark walked the jury through nearly a thousand documents as they meticulously built a case that the family had, in Clark's words, "used Adelphia as a private ATM."
Jurors saw more than a dozen allegedly false Securities and Exchange Commission documents signed by various family members and receipts for personal expenses, both large and small, including 100 pairs of slippers ordered by Timothy Rigas and condo fees for John Rigas's property in Colorado.
Aware that the Manhattan District Attorney's case against Tyco's Kozlowski had foundered on whether he knew his free-spending ways were against the law, the federal prosecutors worked hard to show that the Rigases had been previously warned that billing Adelphia for their personal expenses and using its credit to borrow money was illegal. They brought in an executive, LeMoyne Zacherl, who left the company years ago, to testify that he complained about family spending on farmhands, condominiums and limousines as early as 1993.
But the evidence was far less strong against Mulcahey and Michael Rigas, as defense attorneys repeatedly emphasized. Neither had charged the firm for personal expenses, and Michael Rigas, the former operations chief, was not closely tied to accounting decisions that prosecutors contend misled investors.
While much of the testimony focused on the Rigases' personal spending, the actual charges -- with the exception of conspiracy -- were much narrower. The 15 securities fraud counts alleged that the Rigases and Mulcahey lied to the public about how the Rigases paid for $1.6 billion in company stock and bonds they issued themselves. The two bank fraud counts focused on whether the defendants lied to Adelphia's lenders about the company's revenues in order to obtain lower interest rates. Prosecutors said the firm engaged in "wash" transactions with its cable box suppliers -- charging them marketing fees that were then secretly returned in the form of higher per-box payments.
All four defendants were acquitted of wire fraud charges stemming from allegations that the family improperly used company money to cover $252 million in margin calls on brokerage accounts held by family-owned businesses. Margin calls occur when a brokerage firm loans a client money based on the value of the client's stock and then the stock price falls.
The jurors appeared to pay meticulous attention, despite the length of the trial. Several jurors took extensive notes, and during deliberations, their many messages to the judge requested more than 100 documents by exhibit number and they also cited specific transcript pages.
"The message that verdict sends is that they carefully considered the evidence they were presented with and they . . . split the verdict along the evidentiary lines," said former prosecutor Kirby D. Behre.
