Federal Government Comes Down Hard on Rigases
By Mark Scott
New York City, NY – Wednesday's arrests of Adelphia Communications founder John Rigas and two of his sons were the latest chapter in a story that began unfolding in March. That was when Adelphia disclosed it was carrying $2.3 billion in off-the-books debt. In court papers, prosecutors charged the Rigases with using Adelphia as their "personal piggy-bank."
The arrests of John Rigas and sons Timothy and Michael did not come as a surprise. It had been reported last week that the filing of charges was imminent. Yet, TV images of the 77-year-old Rigas being led away in hand-cuffs were shocking, especially to people in Buffalo and Adelphia's hometown of Coudersport. David Westbrook, an expert in corporate law at UB's Law School, says defendants in white collar crimes are usually allowed to turn themselves in with their attorneys. By actually arresting Rigas and his sons, Westbrook said the Justice Department was making a statement.
"It seems to be very heavy handed way to handle the situation," Westbrook said. "We've got a problem in this country and the Bush administration needs to do something quickly. One thing it can do is to be seen enforcing the law. So, there may be a push to theatricality."
While there appears to be some sympathy for the elder Rigas because of his age, it's being tempered by the enormity of the crime he and his sons are accused of. Court papers describe how the family looted Adelphia on a massive scale, at the expense of shareholders and creditors. State Assemblyman Sam Hoyt of Buffalo places much of the blame on the Rigas sons. "I think it's a story that speaks to the greed of other family members," Hoyt said. "John Rigas built this company into the giant that it was. We're looking at an example of where the next generation became empire builders. And their greed for greater success, in my opinion, is what drove this company into the ground." Buffalo Mayor Anthony Masiello agrees. While he was personally saddened to see John Rigas in handcuffs, Masiello said that as chief executive officer of Adelphia, Rigas has to be held accountable. "When you do something wrong, when you harm the public, when you cause this kind of financial pain on employees, on the public, on the people who have confidence in you, you're going to have to pay the price somewhere down the line," Masiello said.
The Rigases resigned from Adelphia more than two months ago. Since then, the company has declared bankruptcy and is putting together a reorganization plan under the direction of a new management team. But financial analyst Anthony Ogorek points out that interim CEO Erland Kailbourne chaired the audit committee while under the leadership of John Rigas. Ogorek said Wednesday's arrests could reflect negatively on Kailbourne.
"When you go through the 68-page indictment and read some of the stuff that's happened while he (Kailbourne) was on the board, I think that's going to call into question his ability to lead this company out of bankruptcy," Ogorek said. "(The Rigas arrests) may help accelerate the bankruptcy court's decision to possibly replace current management with someone from the cable industry."
Late Wednesday, Adelphia released a statement saying the company supports the action taken by the federal government against the Rigases. The company also announced it's filing suit against the Rigas family, alleging they looted the company, abused their control and wasted corporate assets. The suit seeks to cover losses and triple damages. Often, the prosecution of corporate wrong-doing is complicated and difficult. But UB's Corporate Law expert David Westbrook said that may not be true in this case.
"The Rigas-Adelphia situation is relatively simple. That is, there seems to be a transfer of money from the company to the Rigases as individuals," Westbrook explained. "In that sense, it's like an old-fashioned mis-handling of funds as opposed to the earnings management and accounting and securities problems that we associate with Enron."
Rigas and his sons were released on $10 million bail each. Besides the Rigases, two other non-family former executives of Adelphia were arrested in Coudersport. Authorities say their probe of Adelphia is continuing.