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The family will forfeit $1.5 billion; the company will pay $715 million to create a fund to compensate victims of ''one of the most extensive financial fraud ever to take place at a public company.''
Dave Cook, CFO.com | US
April 26, 2005
Adelphia Communications Corp. will pay more than $700 million to settle ''one of the most extensive financial fraud ever to take place at a public company," according to the Securities and Exchange Commission.
The Rigas family, which founded the now-bankrupt cable giant, will forfeit 95 percent of its assets — totaling more than $1.5 billion — under a settlement with the U.S. Attorney's office for the Southern District of New York and the SEC. Those assets — including cable systems valued at $700 million to $900 million and bonds valued at $567 million — will be turned over to Adelphia. Upon emerging from bankruptcy, the company will then pay $715 million to create a fund to compensate victims of the fraud, according to the commission.
Greenwood Village, Colorado-based Adelphia had offered to settle for $725 million last month, according to a regulatory filing; it was unclear why the final figure was lower. The largest such payout, $750 million, was made in 2003 by WorldCom, now known as MCI Inc.
The settlement, which is subject to court approval, avoids criminal charges for the company. It also helps clear the way for a $17.6 billion cash-and-stock buyout offer from the nation's two largest cable companies, Time Warner Inc. and Comcast Corp., which Adelphia accepted last week.
According to the Associated Press, Adelphia is still seeking more than $3.2 billion from the Rigases, who "seemingly ran the company as if it were their own private cash machine." Last summer, company founder John Rigas and his son Timothy, the former chief financial officer, were convicted on 18 counts of securities fraud, bank fraud, and conspiracy, according to Reuters, and acquitted on 5 counts of wire fraud; they are scheduled to be sentenced in June.
Former vice president Michael Rigas, another son of the Adelphia founder, was acquitted of conspiracy and wire fraud charges; he faces a retrial on 17 counts of securities fraud and bank fraud on which the jury couldn't come to a verdict.
The SEC added that Adelphia and four Rigas family members — John, Timothy, Michael, and John Rigas's third son, James — agreed to permanent injunctions enjoining them from the antifraud, periodic-reporting, record-keeping, and internal-control provisions of the federal securities laws. The Rigas family members also agreed to permanent bars against serving as officer or directors of a public company.
The family will keep two small cable systems near Coudersport, Pennsylvania, where John Rigas founded the company. The Wall Street Journal suggested that retaining the Coudersport systems, which are valued at $7.5 million to $10 million, offered an incentive to the family to settle and will provide a livelihood for family members not implicated in the fraud.
The Journal also reported that the SEC is expected today to file civil charges against Deloitte & Touche, Adelphia's auditor, for failing to uncover the fraud.