Cable Operators

Brown Drops Hammer on Rigases

4/29/2004 7:27 AM Eastern

New York -- Delivering damaging testimony in the trial of Adelphia Communications Corp. founder John Rigas, his sons -- former chief financial officer Timothy Rigas and former executive vice president of operations Michael Rigas -- and former director of internal reporting Michael Mulcahey, former director of finance Jim Brown told jurors Thursday that every financial statement Adelphia released from 1996-2002 was fraudulent.

Brown detailed how he, the Rigases and other Adelphia executives inflated cash flow in order to meet Wall Street expectations and how they later created a “paper trail” to dupe Adelphia’s auditors.

“We needed to be able to fool the auditors,” Brown said, later explaining how he, Tim Rigas and other Adelphia executives enlisted the help of hardware vendors Scientific-Atlanta Inc. and Motorola Inc. to create a series of “wash transactions” that inflated Adelphia’s EBITDA (earnings before interest, taxes, debt and amortization) figures.

Brown said he and Tim Rigas approved creating “fake marketing-support agreements” that allowed Adelphia to boost its EBITDA in June 2000, September 2000 and other periods.

He added that Adelphia didn’t discuss the transactions with S-A and Motorola until October 2000, and that S-A agreed to inflate the cost of each set-top it had sold to Adelphia that year by $31, and Motorola upped the price by $34.

Brown said Adelphia sent S-A a check for $16.8 million May 8, 2001, and two days later, S-A sent a check back to Adelphia for the same price. Adelphia also sent a check to Motorola May 8, 2001, for $18.3 million, and received a check from Motorola for the exact amount three days later, Brown testified.

Brown testified that the marketing-support agreements with Motorola and S-A had no real economic effect on Adelphia, Motorola or S-A, but that the transactions allowed Adelphia to overstate its EBITDA.

Those transactions allowed Adelphia to inflate its EBITDA in 2000 by $34 million, Brown testified. Both Motorola and S-A asked Adelphia to buy thousands of additional set-tops in exchange for continuing to participate in the scheme in 2001, he added. Officials at S-A and Motorola couldn’t be reached for comment by press time.

Early Thursday, Brown cried when prosecutors displayed a picture of him and Tim Rigas at Brown's wedding, where Tim Rigas was the best man.

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