Are the Rigases Really Robbers?
As the family's fraud trial begins, Adelphia plans reorganization, recovery
By John M. Higgins -- Broadcasting & Cable, 2/29/2004 7:00:00 PM
If accountants and bankers signed off on everything, how could it be criminal? That will be a central issue as the trial of fallen Adelphia Communications founder John Rigas commences this week.
Opening arguments in the criminal trial were slated for Monday morning in a Manhattan court. Rigas, his sons Tim and Michael, and former Adelphia treasury executive Michael Mulcahey are being tried on extensive fraud charges over the collapse of the cable company.
The Rigases are accused of bilking Adelphia of billions of dollars through company-backed loans for stock and personal business purchases. John Rigas, in particular, is accused of drawing as much as $1 million in cash monthly from company accounts for personal use.
Central to the case is $3 billion in family bank loans that were co-signed by Adelphia but didn't appear as liabilities on public securities filings. Prosecutors argue the loans were improper and weren't fully approved by outside directors. Nor did the board fully approve the Rigases' extensive use of company money and property for personal purposes (including a now famous family golf course in tiny Coudersport, Pa., where Adelphia was headquartered). The trial is expected to last three months; the jury was selected last week.
In another Manhattan court, Adelphia filed a plan to reorganize and stay in business. It expects for the company to emerge from Chapter 11 with $8.8 billion in debt, about half the load it carried when it entered bankruptcy protection two years ago.
Adelphia's bank lenders and most bond holders would recover 100% of the principal owed. Holders of convertible bonds and other unsecured credits would get only equity in the successor company and, in some cases, interest in a "litigation trust" that would collect any damages from lawsuits against accountants and the Rigases. Old Adelphia shareholders would get only an interest in the highly uncertain proceeds of litigation.
Adelphia COO Ron Cooper says he can't detail how much each class of creditor would recover because lawyers are still sorting through more than 17,000 claims. Given the circumstances, he was upbeat.
"With $8 billion of debt," he says, "we will be very comfortable and have a very attractive future. One of the things we're trying to do is get out of bankruptcy in good financial condition."
He wants to end persistent speculation that Adelphia's cable systems will be quickly sold off. That was never in the cards, Cooper says, firmly. "We did not want to engage in a discussion where we broke up the company at fire-sale prices."
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