There were grim faces on the defense’s side of the courtroom here last Thursday as former Adelphia Communications Corp. vice president of finance Jim Brown delivered damaging testimony in the trial of Adelphia founder John Rigas and his sons Timothy and Michael and former assistant treasurer Michael Mulcahey.
A Rigas family confidant who became the prosecution’s star witness after reaching a plea agreement in November 2002, Brown broke down into tears soon after taking the witness stand when prosecutors displayed a photo of him and Tim Rigas at Brown’s wedding, where Rigas was the best man.
His testimony has been long awaited as he has been billed as the prosecution’s star witness. He pleaded guilty to conspiracy, securities fraud and wire fraud in November 2002.
Brown went on to tell jurors that every financial statement Adelphia released from 1996 through 2002 was fraudulent. While Brown admitted that he was a key player in helping the MSO cook its books to meet Wall Street expectations, he also pinpointed the Rigas family, Mulcahey and other Adelphia executives as participants in the alleged fraud.
“I lied about a lot of things. I lied about Adelphia’s earnings. I lied about the strength of its balance sheet. I lied about its operating statistics,” Brown testified. “I lied in person to investors when I met with them. I lied in the company’s filings. I lied in the company’s press releases.”
Brown detailed how he, the Rigases and other Adelphia executives inflated cash-flow 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.
Adelphia didn’t discuss the transactions with S-A and Motorola until October 2000, and 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 testified.
The MSO sent S-A a check for $16.8 million on May 8, 2001, and two days later S-A sent a check back to Adelphia for the same price, Brown said. Adelphia also sent a check to Motorola on May 8, 2001, for $18.3 million, and received a check from Motorola for that amount three days later, Brown testified.
Those transactions allowed Adelphia to inflate its EBITDA in 2000 by $34 million, but Motorola and S-A didn’t benefit economically from the agreements, Brown testified. In 2001, Motorola asked Adelphia to purchase an additional 100,000 set-tops “to continue to go along with our scheme,” Brown testified.
Brown told jurors he recommended that Adelphia threaten to put out a press release in which it would cancel all set-top orders from Adelphia, but that Tim Rigas later signed off on buying the additional set-tops for Adelphia.
Scientific-Atlanta also asked Adelphia to buy more set-tops in exchange for continuing with the marketing support transactions, Brown testified.
Motorola and S-A declined to comment last Friday when asked whether or not they asked Adelphia to purchase additional set-tops in exchange for continuing with marketing support agreements.
Both companies denied any wrongdoing.
“The transactions with Adelphia were properly recorded on Scientific-Atlanta’s books, and Scientific-Atlanta is cooperating with the government’s investigation,” S-A’s Sara Stutzenstein said.
Motorola said it was “confident that these transactions have been properly recorded on Motorola’s books in accordance with generally accepted accounting principles.”
John, Timothy and Michael Rigas and Mulcahey are on trial for 24 counts of conspiracy, wire fraud, bank fraud and securities fraud. All four have pleaded innocent.
The prosecution is scheduled to resume questioning Brown on Monday morning.