Federal prosecutors in the fraud trial of four former Adelphia Communications Corp. executives stumbled last week, after a key witness said his testimony regarding covenants on $2.3 billion in co-borrowing agreements was mistaken.
The gaffe apparently dented, if slightly, what looked like a slam-dunk case for the government.
Former Adelphia chairman John Rigas; two of his sons, former chief financial officer Timothy Rigas and former executive vice president of operations Michael Rigas; and former director of internal reporting Michael Mulcahey are charged with 24 counts of conspiracy, bank fraud, wire fraud and securities fraud.
The government alleges the Rigases and Mulcahey stole hundreds of millions of dollars from Adelphia for their own personal use.
All four men have pleaded innocent.
"The fact that the government made what would appear to be a grievous error is very unfortunate and would appropriately be dealt with on a motion for a mistrial," U.S. District Court Judge Leonard Sand said in court March 15. "I'm not suggesting what the outcome of such a motion would be."
That "error" centered around the testimony of former Adelphia board member Dennis Coyle.
Coyle, who spent eight days on the witness stand, originally said leverage ratios for several co-borrowing agreements involving Adelphia and several Rigas family partnerships were out of whack.
Those co-borrowing agreements — totaling about $2.3 billion — had stipulated that the parties maintain a leverage ratio of at most 6.5 times cash flow.
While Adelphia had maintained ratios well below that mark, some of the Rigas partnerships had leverage ratios as high as 34.8 times annualized cash flow.
"This was an unmitigated disaster," Coyle said in testimony on March 8.
HE WAS MISTAKEN
But during cross-examination by the defense, Coyle admitted that he was mistaken: the leverage ratios required by the agreements were for the combined borrowers, Adelphia and the Rigas partnerships, and not for the individual entities.
That effectively blew the government's argument — that the Rigases had participated in the loans without the ability to pay for them — out of the water, at least for the time being.
Losing what amounted to eight days of testimony from a key witness does not bode well for the government, said American University Washington College of Law adjunct professor Randall Eliason, a former assistant U.S. attorney in Washington, D.C.
"It's certainly not a good thing," Eliason said. "The guy is clearly an important witness — you lead off with people that are fairly important. To have spent that much time with him and to have it all go south on them sounds pretty serious.
"Whether it's something you can recover from or not, it's pretty hard to say at this point. But it's certainly not a good day for the government."
Prosecutors still have plenty of time left to make up for that setback, Eliason said. The trial is expected to last at least three months.
"It's the first inning of a nine-inning game," Eliason said. "In every trial, both sides have good days and bad days. You'd have to say this was not a good thing for the government, but there is a lot of game left to be played."
NO MISTRIAL SOUGHT
Peter Fleming, the attorney for John Rigas, said that he would not seek a mistrial, mainly because he has something better — a discredited witness.
"That makes sense, from the defense's point of view," Eliason said.
"A mistrial at this point, all that happens is you pick a new jury and start over. What have they gained? This case is not going to go away if a mistrial is granted."
But Fleming said he's considering asking the court to dismiss bank fraud charges.
Bank fraud makes up only two counts in the government's 24-count indictment, but carries the most potential jail time: a maximum of 30 years.
After Coyle left the stand on the morning of March 15, jurors got a little taste of Hollywood when former La Femme Nikita star Peta Wilson took the stand.
Wilson, looking visibly nervous, testified that she flew on the Adelphia jet about nine times between 1999 and 2001, at Tim Rigas's invitation.
The trips included four dinner dates in New York; a trip from St. Barts to Buffalo, N.Y., where Wilson appeared at a Buffalo Sabres hockey game (the Rigases owned the Sabres); and a trip to Jamaica, where she was on a magazine photo shoot.