2003, 2005 by the AICPA

The Adelphia Fraud

This presentation is intended for use in higher education for instructional purposes only, and is not for application in
practice. Permission is granted to classroom instructors to photocopy this document for classroom teaching purposes
only. All other rights are reserved. Copyright 2003, 2005 by the American Institute of Certified Public Accountants,
Inc., New York, New York.
2003, 2005 by the AICPA
Adelphias Background
John Rigas purchased cable company in
1952 for $300 in Coudersport, Pennsylvania

He purchased it to hedge against lost sales
for his movie theater

In 1972, he and his brother, Gus, created
Adelphia Communications Corporation
2003, 2005 by the AICPA
Adelphias Background
Adelphia is Greek for Brothers
Signifies the Greek heritage
Corporation run by brothers

Adelphia has always been a family business

In the late 1990s, it purchased Century
Communications for $5.2 billion and became the 6
th

largest cable company with 5.6 million subscribers
2003, 2005 by the AICPA
John Rigas (Adelphia Founder)
Loves Limelight/Service

Board of Directors
National Cable Television
Citizens Trust Company
Charles Cole Memorial Hospital

President of several committees


2003, 2005 by the AICPA
John Rigas (Adelphia Founder)
Ordered network to show him at least once
during Sabres games
Bought homes for people
Flew people on private planes for medical
treatment
Gave huge amounts to charities
Had to approve every business transaction

2003, 2005 by the AICPA
John Rigas (Adelphia Founder)

Characteristics of a fraud perpetrator
Egocentrism
Omniscience
Omnipotence
Invulnerability
2003, 2005 by the AICPA
The Family Business

Family Members in Management include:
John Rigas, Founder and Chairman (Father)
Tim Rigas, CFO and Board member (Son)
Michael Rigas, EVP and Board member (Son)
James Rigas, EVP and Board member (Son)
Peter Venetis, Board member (Son-in-law)
Family Management =
Majority of Adelphias
Voting Stock
Majority on Adelphias
Board of Directors
2003, 2005 by the AICPA
Extravagant Lifestyle symptoms
Several Vacation Homes and luxury
apartments in Manhattan
Several private jets
Construction of a world-class 18-hole golf
course
Majority ownership of the Buffalo Sabres
$700,000 membership in an exclusive golf
club





2003, 2005 by the AICPA
The Fraud Charges
Violation of RICO act
Breach of fiduciary duties
Waste of corporate assets
Abuse of control
Breach of contract
Unjust enrichment
Fraudulent conveyance
Conversion of corporate assets

2003, 2005 by the AICPA
How the Fraud took place
Adelphia backed $2.3 billion worth of personal
loans to the Rigases

Rigas Management manipulated the books to
meet analysts expectations and inflate the stock
price

Rigases created private partnerships w/Adelphia
as a tool for the self-dealing schemes.
Fund transfers were made through journal entries
that gave Adelphia more debt and the Rigases multi-
million dollar assets at no cost.
2003, 2005 by the AICPA
How the Fraud took place (contd)

Rigas Management commingled Adelphia funds with
family funds causing Adelphia to fund non-corporate
projects, such as:

Personal loans

Real estate transactions
Purchase of Manhattan apartments for private use
Purchase of land for a private golf course

Cash advances to the Buffalo Sabres

$252 million to pay margin calls, or demands for cash payments
on loans for which the family had put up Adelphia stock as
collateral.
2003, 2005 by the AICPA
How the Fraud took place (contd)
Revenues from Adelphia subsidiaries and other
businesses were dumped into one central
account. They used this account to pay bills.

Financial affairs of Rigas Family Entities were
intermingled with Adelphia, but not
consolidated. (Off-the-balance sheet debt)

The Rigases used Adelphias line of credit for
personal purchases.

2003, 2005 by the AICPA
How the Fraud took place (contd)
Transaction Account from Adelphia Communications
Buffalo Sabres
Hockey
Family-owned
Farm
Interior Design
Shop
Private Car
Dealership
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2003, 2005 by the AICPA
How the Fraud took place (contd)
The Rigases doctored financial records at
Adelphia and created sham transactions
and phony companies to inflate the firm's
earnings and to conceal its mounting
debts.

Upon realizing the extent of funds taken,
Tim Rigas limited the amount of
Adelphias funds his father could take to
$1,000,000/Month
2003, 2005 by the AICPA
How the Fraud Evolved
It is commonplace for owners of family
businesses to think of the companys
money as their own.
Adelphias management and board was
controlled by the Rigas family
The suit against the Rigas family details
the ways in which the family used
Adelphia in a rampant self-dealing scheme
2003, 2005 by the AICPA
The Aftermath
The companys stock price plummeted after it was delisted
from the NASDAQ for failure to file its 2001 10-K. Shortly
after that, on June 25, 2002, it filed for bankruptcy.
2003, 2005 by the AICPA
Litigation
John and Timothy Rigas found guilty of
conspiracy, bank fraud and securities
fraud await sentencing of possible 30
years in prison.
Michael Rigas acquitted of conspiracy and
wire fraud. Awaiting a new trial on
securities fraud
Rigas family facing suit by Adelphia
2003, 2005 by the AICPA
Litigation (contd)
James R. Brown, VP of Finance pleaded guilty in
SEC case against him
Michael C. Mulcahey, VP and Assistant Treasurer
acquitted of criminal charges
Adelphia sues auditor Deloitte & Touche for
professional negligence, breach of contract,
fraud and other wrongful conduct.
Adelphias reorganization plan in emerging from
bankruptcy gives the Rigases nothing for their
holdings