Adelphia sues founder for ‘looting’ firm
Beleaguered US cable TV operator Adelphia Communications is suing John Rigas, the company's founder and former chairman, his three sons, son-in-law and two former employees for embezzling vast sums from the company’s coffers.
The lawsuit states that the Rigas family directors, together with the other defendants, “are responsible for one of the largest cases of corporate looting and self-dealing in American corporate history.”
The Rigas family directors (John, Tim, Michael, and James Rigas) held a majority of Adelphia's voting stock and together with John Rigas' son-in-law, Peter Venetis, formed a majority on Adelphia's board of directors.
John, Tim, Michael, and James Rigas also held all of the senior executive positions of the company. The two former employees accused are James Brown, Adelphia's Vice President of Finance, and Michael Mulcahey, a Vice President of Adelphia and its Assistant Treasurer.
Filed yesterday in bankruptcy court in the Southern District of New York, the company's lawsuit charges the defendants with violation of the Racketeer Influenced and Corrupt Organizations (‘RICO’) Act, breach of fiduciary duties, waste of corporate assets, abuse of control, breach of contract, unjust enrichment, fraudulent conveyance, and conversion of corporate assets.
According to the filing, the Rigas’ manipulated the company's books and records so that its quarterly metrics would meet or exceed Wall Street's expectations, thus inflating the price of the company's publicly traded stock.
The lawsuit also states that the Rigas mixed Adelphia funds with funds from entities in which the Rigas maintained a controlling interest, causing Adelphia to dole out hundreds of millions of dollars to fund non-corporate projects.
These ranged from personal loans to real estate transactions, including the purchase of Manhattan apartments for personal use and land for a private golf course, making cash advances to the Rigas-controlled Buffalo Sabres hockey team, and providing millions of dollars to members of the Rigas Family so that they could satisfy margin calls on their stock holdings.
Erland Kailbourne, Chairman and interim Chief Executive Officer of Adelphia, remarks "The purpose of this lawsuit is to recover damages from the Rigas family and their controlled entities for their massive self-dealing and misconduct. These members of the Rigas family deliberately acted with the purpose of benefiting themselves at the expense of Adelphia, its employees, investors and the 3,500 local communities we serve."
The Coudersport, Pennsylvania-based firm is the sixth-largest cable television company US and has spiralled towards financial collapse since a revelation in March that it had guaranteed loans of $2.3 billion to the Rigas family. Shortly afterwards, company accountant Deloitte & Touche withdrew all the certifications of financial statements it had made of Adelphia and its subsidiaries since March 2001.
Adelphia voluntarily filed for Chapter 11 protection in June and has since been granted access to $500 million of a $1.5 billion debtor-in-possession (DIP) financing facility.