Adelphia Founder, Son Convicted of Fraud
Another Son Acquitted of Conspiracy in Partial Verdict
By Brooke A. Masters and Ben White
Washington Post Staff Writers
Friday, July 9, 2004; Page E01
NEW YORK, July 8 -- A federal jury found Adelphia Communications Corp. founder John J. Rigas and his son Timothy, the former chief financial officer, guilty of conspiring to loot the cable television 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, 79, and Timothy J. Rigas, 47, were also found guilty of two bank fraud counts and 15 counts of securities fraud. Another of John Rigas's sons, Michael, 50, was acquitted of conspiracy, and jurors were deadlocked on 17 bank and securities fraud charges against him. All three Rigases were acquitted of wire fraud charges, and a fourth former Adelphia executive, Michael C. Mulcahey, was acquitted on all counts. U.S. District Judge Leonard B. Sand then sent the jury home for the night.
The partial verdict came after eight days of deliberations and 3 1/2 months of testimony and argument. Prosecutors alleged that that the Rigas family siphoned $100 million from Adelphia to pay for 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 television company.
Legal experts said the convictions were a 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 lost. Prosecutors have said the Adelphia case was also one of the worst recent examples of corporate titans milking a public company for private financial gain.
"This conviction is bigger news that the indictment of Kenneth Lay," the Enron Corp. founder, said former federal prosecutor Jacob S. Frenkel. "The Adelphia Corporation 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 former Rite Aid Corp. chairman and chief executive Martin L. Grass were the result of plea bargains. Credit Suisse First Boston investment banker Frank P. Quattrone and Martha Stewart were convicted of less serious obstruction offenses. The trial of Tyco International Ltd. chief executive L. Dennis Kozlowski ended in a mistrial.
John and Timothy Rigas each face a maximum of 30 years in prison on the convictions of bank fraud, the most serious charge. But they almost certainly will be sentenced to less time under federal guidelines. Their sentencing date will not be set until the charges against Michael Rigas are resolved.
Sentencing may be complicated by a recent U.S. Supreme Court ruling that bans judges from ordering more prison time based on facts that were not considered by a jury, such as the number of victims or the total amount of a loss.
None of the defendants showed any reaction as the verdicts were read, though supporters of John and Timothy Rigas wept. John Rigas remained seated behind the defense table for 30 minutes after the court adjourned, reading through the jury's verdict form and being consoled by family members. He declined to comment as he slowly made his way out of the courtroom.
"Of course we're disappointed,'" said Paul R. Grand, an attorney for Timothy Rigas, according to Bloomberg News Service. "I'm pleased for Mulcahey and disappointed for Tim Rigas. We hope we get a better verdict in another court.''
Mark J. Mahoney, Mulcahey's lawyer, said his client was pleased by the verdict but felt badly for John and Timothy Rigas. "It was wonderful for my client but bittersweet because of the convictions of the others," Mahoney said.
Lawyers for John and Michael Rigas said little about the outcome, and the U.S. attorney's office in Manhattan, which brought the case, declined to comment.
The Adelphia trial showcased the U.S. attorney's office's decades of experience in prosecuting complex white-collar cases. Prosecutors Richard D. Owens and Christopher J. Clark walked the jury through nearly a thousand documents as they built their case that the family had, in Clark's words, "used Adelphia as a private ATM."
Jurors saw more than a dozen allegedly false SEC documents signed by various family members and receipts for personal expenses large and small, including those for 100 pairs of slippers ordered by Timothy Rigas and condominium fees for John Rigas's property in Colorado.
Aware that the case against Tyco's Kozlowski foundered on whether he knew his free-spending ways were against the law, the prosecutors worked hard to show that the Rigases had been warned that billing Adelphia for 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 the two defendants who were not convicted Thursday.
Mulcahey, the former assistant treasurer, rejected an early plea-bargain offer and was the only defendant to take the stand. "His testimony gave [jurors] a chance to size him up personally," Mahoney said. "He had no motive to commit a crime or act in violation of the law. He didn't get any money."
Michael Rigas, Adelphia's former operations chief, had reimbursed the firm for personal expenses and was not closely tied to accounting decisions that prosecutors contend misled Adelphia's lenders and investors.
"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 Kirby D. Behre, a former prosecutor.
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 company's revenue to obtain lower interest rates.
During deliberations, the jurors requested both exhibits and transcript pages by specific number, but never asked a legal question. On Thursday, they sent Sand a note shortly after lunch, saying they were having "difficulty coming to our decision on certain counts." Sand told them they could return a partial verdict before resuming deliberations on any remaining counts.
He then told the panel to return Friday morning when he will probably give them the standard instructions on how to deal with an impasse. "Ladies and gentlemen, you have been working very hard, but your task is not finished," he said.
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