VideoWhen Vanessa Wittman came to Adelphia Communications Corp. as CFO last March, the cable-television giant was in danger of being disconnected. A victim of alleged fraud and plundering by its controlling shareholders, the Rigas family, Adelphia had been mired in Chapter 11 bankruptcy since June 2002. Even after seven months, an interim management team had failed to improve the company's poor performance, and now a new CEO was assembling a new team. At one point, liquidation had been a distinct possibility—the fifth-largest cable company in the nation, after all, had billions of dollars in assets that could be sold off.
"There was a lot of anxiety about whether the business was fixable or not," says Wittman. Yet the decision was made to salvage the company—clean up the toxic remnants of fraud and get Adelphia back in the good graces of customers, investors, and even employees, who had been demoralized by the scandal. And Wittman, who had just finished guiding Vancouver-based broadband provider 360networks Corp. out of bankruptcy, was tapped to help lead the effort.
At first she was surprised—and then relieved—at how little the finance rank and file really knew about what may be one of the largest frauds in corporate history. Instead of a corrupt environment, full of people who had winked or looked the other way, Wittman found a staff more or less in shock over what had transpired. "There was no culture of greed," she says, and thus no need for a wholesale purging of the ranks. Indeed, Wittman recalls making a jesting query to Adelphia CEO William Schleyer: "Where did you hide all the jerks?"
That sense of humor has helped Wittman maintain her balance while doing one of the toughest jobs in finance: cleaning up a scandal-plagued company (see "Sweeping Up," at the end of this article). Today, Adelphia is striving to regain both its solvency and its credibility. The Rigas family—John and his sons, Timothy, Michael, and James—left the building in May 2002, followed by former vice president of finance James Brown and assistant treasurer Michael Mulcahey. Armed with $1.5 billion of debtor-in-possession (DIP) financing, the company is now preparing a reorganization plan that includes updating its cable systems and emerging from bankruptcy completely intact.
Easier said than done. Adelphia, claims Wittman, is "the most complicated bankruptcy the country has ever seen." Not only must Wittman steer Adelphia through the shoals of Chapter 11, she must also contend with shareholder lawsuits and criminal investigations.
Then there's the matter of separating fact from fiction in Adelphia's accounting. "Nothing was as it seemed," recalls Wittman. "Not only were there the issues of fraud and scandal that had really wracked the company, but the fraudulent accounting masked some pretty poor management. This was a company that had been reporting margins approaching 40 percent—and there were over 10 margin points of alleged fraud in there."
All in the Family
The first public indication that something was amiss came in a footnote to Adelphia's March 27, 2002, earnings release. That footnote revealed the amount of off-balance-sheet debt that had been incurred through co-borrowings by the Rigases—$2.3 billion. (The sum later swelled to $3 billion.) When asked during the earnings conference call what the family was using the money for, Timothy Rigas, then CFO, replied that some of it had been used to buy more shares of Adelphia. The stock price dropped 18 percent on the news.
The loans and other related-party transactions became the object of SEC scrutiny and grand-jury investigations in Pennsylvania and New York. Eventually, on September 22, 2002, a federal grand jury in Manhattan indicted the five former Adelphia executives—John, Timothy, and Michael Rigas, James Brown, and Michael Mulcahey—on 24 counts of securities fraud, wire fraud, and bank fraud. Their actions, charged U.S. Attorney James B. Comey, constituted "one of the most elaborate and extensive corporate frauds in history." (Brown later pleaded guilty to fraud and conspiracy charges and agreed to cooperate with authorities.)
It was a shocking end to the ruling family's hold on an empire that was built over 50 years. John Rigas founded the company in 1952 in Coudersport, Pennsylvania, with the purchase of a tiny cable franchise for $300 and a $40,000 loan from a local doctor and a state senator. Eventually, Adelphia grew—mainly through acquisitions—into the fifth-largest cable company in the country, with more than 5 million customers. But Rigas never wavered from his extremely centralized management style. "It was still being run as if it were a small family business," says Michael Kramer, managing director of Greenhill & Co., an adviser to the creditors in the bankruptcy proceedings.
Rigas, chairman and CEO, and his sons controlled every move: Michael was executive vice president of operations, James was executive vice president of strategic planning, and Timothy was CFO. All held seats on a board of directors that also included John's son-in-law, Peter Venetis. Their ownership of a special class of voting shares made it impossible for other shareholders to challenge their control.
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