John Rigas, former CEO of Adelphia, Inc., reported to prison on August 12, 2007. His son, Tim, will also report to federal prison. John will serve 15 years and Tim will serve 20. The judge gave the elder Rigas fewer years because of his health problems; he has a failing eye and bladder cancer. The judge also ruled that John can be released from prison after two years when a doctor certifies that he has less than three months to live.
Just prior to reporting to prison, John gave an interview to USA Today to tell what he says is his side of the story. He acknowledges that he borrowed $2.3 billion from Adelphia, but that everyone was aware of the loans. The loans were disclosed in 2002. Months after the disclosure, John Rigas and his two sons were arrested. His other son. Michael, was sentenced to 10 months of house confinement.
Mr. Rigas offered the following insights about his conduct:
“It was a case of being in the wrong place at the wrong time. If this had happened a year before, there wouldn’t have been any headlines.” “I believe there is a time when you can’t compromise your values. My legacy is to my grandchildren, and you have to stand up – as difficult as it is – for something. And that is not something to be compromised or amended.” “I felt like I was Gary Cooper.” [referencing High Noon when Mr. Cooper faced the gunslingers alone]1 Deloitte & Touche, Adelphia’s auditors, settled the case with the SEC by agreeing to pay a $50 million fine (not admitting or denying guilty). The law firm withdrew from its representation of the company when it learned of the loans.
Mr. Rigas acknowledges that Adelphia did not explain the loans very well to shareholders, “But, at the same time, there was nothing illegal about it. Anybody could have calculated it.”2
What bothered him the most? He says the fact that he has lost 95% of his wealth. His net worth peaked at $2.5 billion.
What bothered him most about the prosecution’s case? The story about the transport of two Christmas trees to his daughter, Ellen, who lived in New York City. The prosecution showed that the trees were flown from Coudersport, PA, the location of Adelphia headquarters and home to the Rigas family, to New York City and Ellen. John said that executives were flying to New York City and the three went along as baggage on the private jet.
Another was the story about the golf course that the prosecution used to establish its “personal piggybank” theory of the case - that the Rigases used the company for their personal projects. The golf course was proposed in 1999 as a cooperative arrangement between and among the Rigases, an outside board member, and Adelphia. John said it was something he thought of to bring national attention to Coudersport, PA, just like August, Georgia, “It was an opportunity to show that a major corporation could exist in an environment away from money centers.”3 The golf course was never built, being abandoned in 2002 when the troubles hit. The proposed cost to shareholders was $15 million.
What is the liability of corporate officers for misuse of corporate funds? For failure to disclose material financial information?
1 Leslie Cauley, “Rigas Tells His Side of the Adelphia Story,” USA Today, August 6, 2007, pp. 1B, 2B.