Adelphia Communications Corp. has settled fraud charges with two federal agencies, clearing some rubble from the path to its pending sale to Time Warner Inc. and Comcast Corp. later this year.
According to a statement by the Securities and Exchange Commission last Monday, Adelphia has agreed to pay the SEC and the U.S. Dept. of Justice $715 million in cash, which will be placed in a victims fund to be established by the U.S. District Court and used to compensate investors hurt by the fraud.
As a result of the agreement, the SEC and DOJ have agreed not to prosecute Adelphia.
RIGASES GIVE UP $1.5B
The Rigas family agreed to surrender about $1.5 billion in assets to Adelphia, including its interests in various cable properties.
“This tentative settlement is the product of lengthy negotiation and compromise and it is the price we must pay to protect against the much larger potential harm of leaving the government claims and fate of the managed cable entities unresolved,” Adelphia chairman and CEO Bill Schleyer said in a statement. “Preserving value for our constituents was utmost in our minds during these negotiations, and we believe this is the best possible outcome given the circumstances.”
Adelphia filed for Chapter 11 bankruptcy protection in June 2002, after an accounting scandal surrounding the Rigases alleged fraud. In July 2004, former Adelphia chairman John Rigas and his son former chief financial officer Timothy Rigas were convicted on 18 counts of fraud and conspiracy stemming from a scheme to bilk Adelphia out of hundreds of millions of dollars for their own personal use.
A third son, former executive vice president of operations Michael Rigas, was found not guilty of bank fraud charges, but the jury could not reach a decision on securities fraud charges against him.
John and Timothy Rigas are scheduled to be sentenced on June 1. Michael Rigas is scheduled to be retried on the securities fraud charges in October.
As part of the settlement, the Rigas family has agreed to surrender cable systems with 227,000 subscribers and worth between $700 million and $900 million to Adelphia, as well as Adelphia bonds worth $567 million, 44.7 million shares of common stock worth about $8.5 million and real estate assets worth about $10 million, according to the SEC. Once Adelphia takes title to those assets, it will place the $715 million into the victims fund.
The Rigas family — other than John and Tim — will be allowed to retain ownership of the cable systems in Coudersport/Port Allegheny and Emporium, Pa., with about 5,000 customers, Adelphia said.
Adelphia had proposed in March to settle the government fraud charges by making a $725 million payment. It wasn't clear at press time why the actual payment will be less.
The settlement clears one of the hurdles to the $17.6 billion sale of Adelphia's cable assets to Time Warner and Comcast, which is expected to close in nine to 12 months.
MORE IS SOUGHT
Adelphia is still seeking $3.2 billion from the Rigas family. The Justice Dept. has been seeking $2.5 billion in damages from the family.
The Rigas end of the settlement represents about 97% of the family's assets, said SEC spokeswoman Alistaire Bambach.
“We got most of it,” Bambach said.
Adelphia will make the settlement payment before it emerges from Chapter 11 bankruptcy protection, which is expected at the time the Time Warner-Comcast deal closes.
“This settlement agreement presents a strong, coordinated approach by the SEC and the U.S. Attorney's Office to resolving one of the most complicated and egregious financial frauds committed at a public company,” SEC Northeast Regional Office director Mark Schonfeld said in a statement. “The settlement provides an expedient and effective way to provide victims of Adelphia's fraud with a substantial recovery while at the same time enabling Adelphia to emerge from Chapter 11 bankruptcy.”