Adelphia Communications Corp.’s unsecured creditors sued more than 450 banks that loaned money to the Denver-based MSO’s former ruling Rigas family, claiming that they knew the Rigases would use the money for their own personal gains, yet made the loans anyway.
In a 252-page document filed with the U.S. Bankruptcy Court for the Southern District of New York Sunday, the unsecured creditors claimed that the banks made $3.4 billion in loans -- so-called co-borrowing agreements -- with the Rigas family that Adelphia was liable for.
Those loans were used essentially by the Rigases to purchase Adelphia stock in order to keep their majority voting control of the company.
Those co-borrowing loans were the catalyst for Adelphia’s Chapter 11 bankruptcy filing last June.
In September, former Adelphia chairman John Rigas, his sons -- former chief financial officer Timothy and former executive vice president of operations Michael -- and former chief accounting officer Michael Mulcahey were indicted on federal fraud charges.
The Rigases and Mulcahey have denied the charges against them.
A trial date is scheduled for Jan. 5.
The unsecured creditors have asked for $5 billion in damages and that $5.2 billion of Adelphia debt be frozen until creditors are paid.
The suit claims that several banks -- including Bank of Montreal, Wachovia Corp., Bank of America Corp., Citigroup Inc. and Deutsche Bank AG -- made the loans to secure investment banking business from Adelphia.
The creditors sued so many banks because the loans were syndicated, or sold and resold piecemeal to a number of lenders.
According to the suit, these banks and others knew that the Rigases would use the loans in part to enrich themselves at the expense of Adelphia, which was already one of the most highly leveraged MSOs in the cable industry.
“Aware of obvious red flags, many of the co-borrowing lenders merely rubber-stamped the co-borrowing facilities so that their affiliated investment banks could earn hundreds of millions of dollars in fees,” the suit stated.
The Rigases didn’t use the money just to buy Adelphia stock, the suit claimed.
According to the document, the Rigases used a portion of the loan money to fund $175 million in expenses for the Buffalo Sabres National Hockey League team (then owned by the Rigases); to buy $700 million in cable properties for a family-owned company; to fund expenditures relating to the development of a golf course on Rigas-family land; and to purchase $40 million in furniture and timber rights from Rigas-family entities.