Adelphia Communications

Founded by brothers John and Gus Rigas in 1952, Adelphia Communications Corporation eventually became the dominant cable provider in southern Florida, western New York, and Los Angeles. In addition to cable entertainment, the publicly traded firm offered high-speed Internet access, long-distance telephone service, digital cable, home security, and paging. The company was admired for its aggressive growth and was recognized for industry leadership. By the early 2000s, Adelphia was one of the largest cable television companies in the United States, and John's sons, Michael, Tim, and James, were executives and members of the board of directors at Adelphia.

Adelphia filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in June 2002, shortly after the Rigas family executives resigned their positions. The events leading to the bankruptcy highlight the misconduct that can occur when a firm's corporate governance system is weak. In addition to the use of corporate jets for personal business, off–balance sheet loans were made to Rigas family members. For example, Adelphia helped fund the family purchase of a golf course and the Buffalo Sabres hockey team. John Rigas's daughter and her husband, who served on Adelphia's board of directors, lived rent-free in a Manhattan apartment owned by Adelphia. A Rigasowned farm made most of its revenue by performing snow removal, landscaping, and related services for [Page 18]Adelphia. A Rigas relative was paid nearly $13 million for furniture and design services in 2001.

Adelphia was a public firm with thousands of stockholders. However, the Rigas family controlled the firm with over 50% of the share votes, despite holding only 11% of the shares. This dual-stock structure, along with the executive power held by Rigas family members, set this corporate governance scandal apart from those at Enron and WorldCom. The U.S. Securities and Exchange Commission (SEC) detailed evidence of $2.3 billion in off–balance sheet debt, inflated earnings, falsified operations statistics, and blatant self-dealing by the family.

Adelphia pursued a lawsuit against Rigas family members and 20 companies controlled by the family. The lawsuit focused on violations of the Racketeer Influenced and Corrupt Organizations Act, including a breach of fiduciary duty, abuse of control, waste of corporate assets, and substantial self-dealing. Adelphia's external auditor, Deloitte & Touche, paid $50 million to settle SEC charges stemming from its audit of Adelphia's fiscal year 2000 financial statements. Adelphia paid $715 million to settle charges with the SEC and United States Department of Justice, while the Rigas family forfeited more than $1.5 billion in assets. The scandal caused losses to investors of more than $60 billion.

In mid-2005, 80-year-old John Rigas was sentenced to 15 years in prison after a U.S. District Judge rejected his plea for leniency. Timothy Rigas was sentenced to 20 years in prison, while other cases are yet to be determined. Observers noted that the sentences sent a clear signal about the extent to which whitecollar crime would be punished. Under its bankruptcy reorganization plan, most of Adelphia's assets were to be sold to Time Warner and Comcast.