The five former Adelphia Communications Corp. executives indicted on charges of conspiracy, securities fraud, wire fraud and bank fraud last week entered innocent pleas — and signaled that their defense strategy will be to place blame on the MSO's board of directors.
Former Adelphia chairman John Rigas and his sons — former chief financial officer Timothy Rigas and former executive vice president of operations Michael Rigas — pleaded innocent to the 24-count indictment entered against them at an Oct. 2 arraignment in U.S. District Court in Manhattan
Two other former Adelphia officers, former vice president of finance James Brown and former director of internal reporting Michael Mulcahey, also pleaded innocent to the charges.
On Sept. 23, U.S. Attorneys charged the five men with what the government characterized as one of the most elaborate frauds in U.S. corporate history. If convicted, each defendant faces a sentence of up to 30 years on the bank fraud charges alone.
After the 15-minute arraignment, the Rigases' lawyers began shifting the blame to Adelphia's current board of directors and its former auditors.
"These have not been easy days for John Rigas," said Peter Fleming, attorney for the former chairman and company founder. "Almost 50 years ago he started with nothing and built what became a great American company. Now, at the age of 78, he is under attack."
Fleming, addressing reporters outside the lower Manhattan courthouse, said that the charges against Rigas are a "massive public misperception," that has been "sadly fueled by the existing Adelphia board of directors."
"It's sad and I think it's wrong," Fleming continued. "When the case is tried and the evidence is in, you will see that John Rigas acted in Adelphia's vital interest."
Fleming appeared to be laying blame on Adelphia's independent directors — chairman and acting CEO Erland Kailbourne, Caithness Corp. president Leslie Gelber, Mannesmann Dematic Systems managing director Peter Metros and FPL Group Inc. general counsel Dennis Coyle.
Since the Rigases resigned their positions in May, Adelphia has added two new members to the board — former Renaissance Cable vice chairman Rod Cornelius and Yale Law School dean Anthony Kronman.
A spokesman for the Coudersport, Pa.-based MSO declined to comment. "We will let our complaint and our lawsuit stand," Adelphia spokesman Eric Andrus said.
Adelphia had previously filed a separate civil lawsuit against the Rigases.
Andrew Levander, the attorney for Michael Rigas, also stressed his client's innocence.
"My client did his job and he did his job properly," Levander said.
And Paul Grand, Tim Rigas's attorney, appeared to be placing blame on Adelphia's former auditors and its legal counsel, the Pittsburgh law firm of Buchanan Ingersoll.
The $3.1 billion in co-borrowing agreements involving Rigas family entities that Adelphia is liable for "were negotiated by the lawyers and approved by the accountants," said Grand.
The next hearing, in which attorneys will present any motions they plan to file during the case, is set for Jan. 9.
At the arraignment, Assistant U.S. Attorney Timothy Coleman said once a trial is set, it could take two to three months to complete. Because he expects to call witnesses that the prosecution likely won't, Fleming interjected, the case could drag on substantially longer.
In the federal indictments, the government alleges that the Rigases used Adelphia funds as if they were their own, taking hundreds of millions of dollars to buy company stock and for personal gain.
According to the indictment, the Rigases used $252 million to satisfy margin calls, took $52 million in company funds for personal use, spent $13 million of the MSO's money to build a championship golf course and used company aircraft for expensive vacations.
Once the evidence is presented, Levander said, it will be shown that Adelphia's board of directors had signed off on every transaction.
"Some of the board members walked that golf course as it was being constructed," Levander said.
As far as the trips go, Levander said the defendants claimed the costs of personal trips on the company dime as personal income.
Levander — who before the Rigases were arrested by U.S. Postal Inspectors on July 24 had represented both Michael Rigas and his brother, former executive vice president of strategic planning James Rigas — declined to comment on why James Rigas was never charged in the criminal indictment.
James Rigas has been named in a separate Securities and Exchange Commission civil suit against the Rigases, in Adelphia's civil suit and in several class-action shareholder suits against Adelphia and the Rigas family.
"One of them [James] got off and the other [Michael] didn't," Levander said. "Both of them should have gotten off."
Asked if James Rigas offered to provide evidence to prosecutors in exchange for not being charged, Levander replied, "There is a lack of evidence."
Huge data trove
Attorneys for both sides said more than 4 million pages of documents must be sifted through during the discovery phase: 150 boxes of paper documents (about 400,000 pages), 400 CD-ROMs (2.4 million pages) and 26 computer hard drives (1.5 million pages). And according to Levander, it could be even more.
Levander wondered aloud why of the 150 boxes of documents, only one was from Adelphia's former auditor Deloitte & Touche LLP. The number of documents would double to 8 million pages if additional documents from Deloitte were included, he added.
Levander stopped short of admitting that he would subpoena Deloitte for those documents. "It is premature to say," he said.