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Adelphia Communications

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by

Taylor Murphy

on 29 April 2015

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Transcript of Adelphia Communications

Adelphia Communications
Family Owned
Many family members were included in management:

John Rigas - CEO

Tim Rigas (son) - CFO

Michael Rigas (son) - board member

James Rigas (son) - board member

Peter Venetis (son-in-law) - board member
Family Owned
Family management was:

majority of Adelphia's voting stock

majority on Adelphia's Board of Directors

T
he Rigases have a long history of "being extremely aggressive in pursuing their own interests."
- Oren Cohen, debt analyst at Merrill Lynch
Company Background
Founded in 1952 - John Rigas

Originally bought the company for $300

Was the 6th largest cable provider in the U.S.

Adelphia reached over 30 states and 5.6 million customers
Result of Adelphia
Adelphia filed for bankruptcy in 2002

Their long-distance telephone business was taken over by Pioneer Telephone

Main business was taken over by Time Warner and Comcast

The brand name of Adelphia no longer exists
John Rigas
First business - bought a movie theater in 1951

Majority owner of the Buffalo Sabres - franchise of the NHL

Family owned a local cable enterprise

Teamed with his brother Gus to start Adelphia Communications after buying out partners

Adelphia went bankrupt in 2002
Adelphia Headquarters
John Rigas
Red Flags
How the Fraud Took Place
3 Different Types of Fraud
Bank Fraud Wire Fraud Securities Fraud
Bank Fraud
Wire Fraud
Fraudulent scheme to intentionally deprive another of property or honest services via mail or wire communication
Illegal means to obtain money or assets held by a financial institution
stolen checks
check kiting
forgery or altered checks
fraudulent loans
uninsured deposits
Also known as stock fraud and investment fraud

Induces investors to make purchase or sale decisions on the basis of false information
Securities Fraud
Nature of the Fraud
Failed to include billions of dollars of liabilities from their financial statements

Accused of hiding the stolen money in other family-owned entities - total up to $100 million that they pocketed

Adjusted the books to increase their stock price

Rigas took $3.1 billion in loans - unrecorded

Used corporation funds for personal use


How the Fraud Took Place
Convictions
John Rigas found guilty of:
fraud and conspiracy
stealing $100 million from the company
hiding billions of dollars of debt
lying to the public about their financial condition
sentenced 15 years

Timothy Rigas (son)
sentenced to 20 years
convicted of the same charges as John Rigas

*sentences differed because of age

What Can We Learn?
Revealed importance of internal controls

Separation of duties is key

Tone at the top is vital

Corporations should always integrate the importance of internal controls in their core strategies
Questions?
Majority of family connections in upper management (opportunity)

Lived beyond their means
vacation homes
private jets
$700,000 dollar membership in an exclusive golf club
How it Could Have Been Prevented
Other Adelphia employees (non-family) should have checked the validity of personal purchases

Separation of duties among family members

Difficult fraud to control because:
family-owned
owners unethical and greedy
large amount of opportunity and motivation among management
References
http://online.wsj.com/articles/SB1027516262583067680

http://en.wikipedia.org/wiki/Adelphia_Communications_Corporation

http://scholars.unh.edu/cgi/viewcontent.cgi?article=1099&context=honors

http://money.cnn.com/2005/06/20/news/newsmakers/rigas_sentencing/
Full transcript