July 9, 2004
Jury Remains Deadlocked
On Second Son, Acquits
Former Assistant Treasurer
GRANT and CHRISTINE NUZUM
Notching another victory against the corporate excesses of the 1990s, prosecutors won criminal convictions against the father-and-son team of John and Timothy Rigas, former top executives at cable company Adelphia Communications Corp. However, they failed to persuade a jury that the looting involved Adelphia's former assistant treasurer.
The jury left unresolved the case against another member of the Rigas family -- Michael Rigas, former head of Adelphia operations -- remaining deadlocked on most of the counts against him.
Because the Adelphia scandal emerged after the one at Enron, and the company was smaller in size than WorldCom or Tyco, it has garnered less public attention. But for the sheer audacity of the fraud, it ranks high up on the list. Adelphia executives testified that they routinely made up numbers that they gave to investors and lenders, even while the Rigases regularly withdrew money from the company without making reimbursements. Testimony at the trial included the story of how the company's plane was used to fly a Christmas tree to a family member in New York City at a cost of $6,000, and how Adelphia paid a $40,000 annual salary to a personal masseuse for the Rigases.
A federal-court jury convicted 79-year-old John Rigas, Adelphia's founder and former CEO, of fraud and conspiracy for looting the company of more than $100 million, hiding more than $2 billion in debt the family incurred, and lying to the public about Adelphia's operations and financial condition. His son Timothy, the former chief financial officer, was convicted of the same charges.
But after deliberating for eight days, the jury found Michael Mulcahey, Adelphia's former assistant treasurer, not guilty on all 23 counts of conspiracy and fraud that he and the other defendants were facing.
The jury remained deadlocked on charges against the other son, Michael Rigas, and is scheduled to reconvene today to try to break the impasse.
The trouble at Adelphia, the nation's fifth-largest cable company, now operating in bankruptcy protection, began in March 2002 when a footnote in an otherwise routine quarterly earnings statement revealed that the Rigas family had borrowed more than $2 billion under an arrangement with Adelphia that made the family and the company responsible for each other's debts.
In the four-month trial, prosecutors called former employees, a golf pro and actress Peta Wilson to testify about the family's lavish spending habits. Ms. Wilson, the star of the show "La Femme Nikita," and the golf pro testified that they flew on Adelphia's corporate jets for no apparent business purpose. Prosecutors contended that the family treated the company like "their own ATM machine."
The jury appears to have separated Michael Rigas from his brother and father because Michael had little to do with the company's finances. His lawyer also repeatedly told jurors that his client drove an old Toyota, in contrast with Timothy and John, who had a collection of 22 cars paid for by Adelphia, according to one witness. Jurors also were shown stacks of checks written by Michael Rigas to reimburse Adelphia for personal expenses ranging from a flight to Paris to $3.45 in postage.
The verdicts were read out in a hushed and packed U.S. district courtroom in downtown Manhattan. Many family members of the defendants were in the courtroom, as well as supporters from Coudersport, Pa., the village in north-central Pennsylvania where Adelphia used to be based. Several people cried as the verdicts were read. So did Michael Mulcahey, when, after court adjourned, he was hugged by his wife, Cathy Mulcahey, who had been in court virtually every day.
John Rigas and Timothy Rigas sat slumped with their heads down while the verdicts were read, but otherwise they showed little emotion. John Rigas, the son of Greek immigrants who founded Adelphia in 1952, stayed frozen in his chair for more than 15 minutes after court adjourned, while his lawyers and supporters tried to comfort him. He has bladder cancer and missed several days of the trial for routine checkups at the Mayo Clinic in Rochester, Minn., where he is being treated.
Mr. Mulcahey's lawyer, Mark Mahoney, said he believes one of the reasons his client was acquitted was that he was the only defendant who testified on his own behalf. "The jury got a chance to size him up personally," he said. He described the verdict as "wonderful for my client," but added, "It's sort of bittersweet because of the convictions of the others."
John Rigas and Timothy Rigas, 48, face sentences of up to 30 years in jail. But their sentences could be shortened significantly depending on how U.S. District Court Judge Leonard Sand, who presided over the case, interprets a recent Supreme Court decision on sentencing guidelines. The high-court ruling issued stricter guidelines on sentencing in state courts, but some legal experts say it may also apply to federal courts.
John Rigas and Timothy Rigas were each convicted of one count of conspiracy, 15 counts of securities fraud and two counts of bank fraud. The jury found them not guilty of five counts of wire fraud. The jury found Michael Rigas, 50, not guilty of conspiracy and wire fraud, and was undecided about whether to convict him on a total of 17 securities and bank-fraud charges.
Today, the judge is expected to read the jurors the so-called Allen charge, which is often used with deadlocked juries and instructs them to go back and try harder to reach a decision.
Another son, James Rigas, faces civil charges by the Securities and Exchange Commission, along with John, Michael and Timothy Rigas. James Rigas, who has attended some of the trial, left his executive role at Adelphia in the 1990s to head a telecom spinoff, which also filed for bankruptcy protection. A son-in-law and former director, Peter Venetis, is also named in the SEC's civil suit.
Nowhere has Adelphia's collapse been felt more acutely than in its two-stoplight hometown of Coudersport, Pa. Adelphia, which has moved its headquarters to a Denver suburb since it filed for bankruptcy, at one time employed 2,000 people in the town of 3,000, which is nestled in the Allegheny Mountains.
The trial had its share of dramatic moments, such as when James Brown, a former Adelphia vice president who pleaded guilty to charges of conspiracy and fraud, described Timothy Rigas as his best friend but went on to provide devastating evidence against him. But most of the trial was tedious, as witnesses led the jury through complicated descriptions of borrowing agreements, cash-management systems and margin accounts.
Adelphia sought bankruptcy protection in June 2002. A month later, and almost exactly two years ago today, with the stock market tumbling toward its bear-market nadir, John Rigas and his two sons were handcuffed and paraded in front of news cameras.
While Adelphia's scandal was less widely followed than those at Enron Corp. and WorldCom Inc., the image of the white-haired John Rigas in handcuffs became a symbol of the corporate frauds that cost investors billions in savings. President Bush issued a statement calling the arrest a sign that "the government will investigate, will arrest and will prosecute corporate executives who break the law."
Yesterday, hours before the Adelphia verdict, TVs flashed a similar image of former Enron Chairman Kenneth Lay in handcuffs as he was led to court for his own arraignment. While John and Timothy Rigas were convicted in the Adelphia case, the innocent verdict against Mr. Mulcahey and the split verdict against Michael Rigas show how tricky complicated accounting cases can be to try before a jury.
The prosecution dominated the 16 weeks of testimony by calling to the stand 16 witnesses including eight former and current Adelphia executives who gave convincing first-hand accounts of the alleged wrongdoing. The defense called six witnesses to the stand including Mr. Mulcahey.
From the beginning of the trial, it was clear that the government's strongest case was against John and Timothy Rigas. Witnesses implicated John Rigas in some of the most flagrant examples of using company funds. For example, witnesses testified that John Rigas took $1 million of cash per month from the company, without signing anything promising to repay it, and without agreeing to pay interest.
John Rigas's lawyer, Peter Fleming, said that by the late 1990s his client relied heavily on other executives at Adelphia as well as outside accountants and lawyers to make sure that financial transactions were handled correctly and proper disclosures were made. "He undergoes a triple bypass surgery and he is diagnosed with bladder cancer," Mr. Fleming said in his summation. "Does he have a right to believe that things would be done properly?"
--Shawn Young contributed to this article.
A jury found former CEO John Rigas and one of his sons guilty on several counts.
Source: WSJ research
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