Securities Fraud Report
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January, 2nd 2013
To: Adelphia Communications Corporation
From: H&F Auditors, Haddar Freund
Subject: Securities Fraud Report
Adelphia Communications Corporations, John Rigas the founder and owner, his three sons, Timothy J. Rigas, Michael J. Rigas, and James P. Rigas, senior executive James R. Brown, and senior executive Michael C. Mulcahey are being charged on numerous counts of fraud by the Securities and Exchange Commission. This public company dishonored the SECs regulations and legal action was taken against them. The actions committed and legal verdicts are to be further noted and explained.
SEC VIOLATIONS
The Securities and Exchange Commission is charging the above mentioned individuals with numerous counts of fraud. The founders and senior management of Adelphia Communications deliberately excluded billions of dollars in liabilities from their consolidated financial statements. They shifted those hidden figures onto books of off balance sheet affiliates. Adelphias management created false documents stating that debt was paid back. In reality those mounting debts were hidden in financial records of other Rigas family companies. Furthermore, company personnel fabricated operations figures and inflated their earnings in order to meet the expectations of Wall Street and their shareholders. Earnings were inflated by engaging in sham transactions with other corporations to create a false appearance of additional revenue. This was also accomplished by booking fees that were allegedly paid to Adelphia from other family owned operations. The Rigas Family hid extensive personal purchases. This included the discrete use of corporate funds for familial stock purchases as well as excessive and indulgent realty purchases. Such purchases included the building of mansions in New York, Pennsylvania, and elsewhere. In addition to concealing such activity, the Commission also claims that Adelphia Communications and its employees violated antifraud, periodic reporting, record keeping, and internal control stipulations of the federal securities laws.
PERPETRATION OF FRAUD
Since 1998, Adelphia, through the Rigas Family and Brown, made fraudulent misrepresentations and purposely over-sighted material facts to conceal personal expenditures. Such self-dealing included the use of Adelphia funds to finance undisclosed open market familial stock purchases, purchase timber rights to land in Pennsylvania, construct a golf club for $12.8 million, and pay off personal margin loans and other debts.
Between the years of 1999 and 2001, all Rigas family members involved in Adelphia, James R. Brown, and Michael C. Mulcahey collaboratively worked together to scheme a plan that would allow them to exclude over $2.3 billion in bank debt from the consolidated financial statements. They were able to do this by intentionally transferring those liabilities onto the books of Adelphias subsidiary companies unconsolidated partners. In addition to the shifted liabilities, corporation personnel added footnotes to the financial statements stating that all outstanding bank debt was included. This violated GAAPs requirement of disclosing all joint and several liabilities under the notes accompanying the financial statements. FASB interprets that it is a general principle of accounting that the offsetting of assets and liabilities in the balance sheet is unseemly except for when a right exists; Adelphia had no such right. Once this information was presented deceitfully, management created various false documents to support their misrepresentations. False transactions along with false receipts were showed to independent auditors at Deloitte and Touche to concretize the misstatements.
Timothy J. Rigas, Michael J. Rigas, and James R. Brown constantly repeated the same false statements about Adelphias accomplishments in the cable industry. In press releases, earnings reports, and Commission filings, Adelphia management lied about the amount of cable subscribers, future plans of upgrading the company, as well as its earnings such as net income. Each of these aspects led Wall Street to believe that Adelphia Cable Company was financially thriving.
ADELPHIA COLLAPSE
The Securities and Exchange Commission claims that the that the accused parties continued their fraud even after Adelphia acknowledged, on March 27, 2002, that it had excluded several billion dollars in liabilities from its balance sheet. In order to cover up this blunder, the Rigas family attempted to covered-up their actions and discretely redirected $174 million in Adelphia funds to pay personal