The federal fraud trial of four former Adelphia executives is drilling into the alleged doctoring of the cable company’s customer counts, setting the stage for upcoming testimony from the man who’s been expected to be the prosecution’s star witness: former vice president of finances Jim Brown.
Former Adelphia Communications Corp. director of investor relations Karen Chrosniak testified last Thursday that she fudged basic-subscriber figures in 2000 and 2001 at the request of Brown and former chief financial officer Tim Rigas.
Tim Rigas; his father, former Adelphia chairman John Rigas; his brother, former executive vice president of operations Michael Rigas; and former assistant treasurer Michael Mulcahey are on trial facing 24 counts of fraud and conspiracy. All four have pleaded innocent.
Brown — who pleaded guilty to conspiracy, securities fraud and wire fraud in November 2002, in exchange for his testimony — could take the stand as early as this week.
Brown admitted at his November arraignment that he and other company executives agreed to make false statements misrepresenting Adelphia’s finances, its earnings and its number of cable subscribers.
Chrosniak’s first day on the stand focused on subscriber additions. She said last Thursday she was asked by either Brown or Tim Rigas on three separate occasions to take subscribers from operations outside of Adelphia’s main cable business to boost basic-subscriber growth.
The first occurred in March 2000, just before Adelphia released its fourth-quarter and year-end earnings for 1999, when Brown asked her to include 14,500 customers from a Brazilian cable operation in which Adelphia owned a minority interest.
“Subscriber growth was not where we expected it to be,” Chrosniak said.
The second incident came in the third quarter of 2000, when she was asked by Tim Rigas to look into possible subscriber additions from a Venezuelan partnership and a home-security operation Adelphia had in Florida.
The Venezuela partnership has about 28,000 subscribers, she added, and the home-security service had between 60,000 and 80,000 customers. Tim Rigas, she said, appeared very interested in the home-security numbers.
“I can recall him focusing on home-security numbers,” Chrosniak testified. “I said to him that the home-security numbers were very large. If those were included in our numbers, the growth rate would be very, very high and we would have to explain that to investors. He said, 'Well, let’s use the Venezuela subscribers.’ ”
In late November or December of 2000, at least one Adelphia employee appeared to be catching on to the subscriber game. Chrosniak said that around that time, Adelphia vice president of budgeting Mike Brady asked her why his subscriber numbers — which came from internal reports — were so different from the ones that were released to the public.
Obviously rattled, Chrosniak said she told Brady to talk to Brown.
“I didn’t feel it was my responsibility at the time to tell him [Brady] about these adjustments,” Chrosniak said. “I felt it was better he talked to Jim [Brown] or Tim Rigas about it.”
Chrosniak was again asked to boost basic subscribers in August 2001, for Adelphia’s second-quarter 2001 results. She added that Brown asked her to take 11% of Adelphia’s high-speed data customers (the amount he estimated were data-only customers) and add them to the basic-subscriber rolls. That number worked out to be 27,000 customers, just enough to keep Adelphia’s basic subscriber growth rate at about 1%.
On one other occasion, she said Brown asked her to count dial-up Internet customers as high-speed Internet subscribers.
Dial-up customers pay half the rate that high-speed buyers do, Chrosniak added.
Chrosniak said she had an agreement with the government that she hopes means she won’t be prosecuted in exchange for her testimony.
She also said on the stand that she is the ex-wife of former Adelphia director of accounting Tim Werth; they divorced in September 2001.
Werth pleaded guilty to two counts of conspiracy and fraud last year.