Statement * of Deputy Attorney General
LARRY D. THOMPSON
Adelphia Complaint Press Conference
July 24, 2002
Good Morning. I have with me this morning Jim Comey, who is the United States attorney for the Southern District of New York, and his prosecutive team. I also have with me Steve Cutler, who is the Director of Enforcement for the SEC and some of his investigative team. And also Ken Newman, who is the Deputy Chief Postal inspector of the U.S. Postal Inspection Service, and some of his investigative team.
Early this morning, five former top executives of Adelphia Communications were arrested in Pennsylvania and New York on charges of Securities Fraud, Wire Fraud and Bank Fraud. The complaint, which has been filed in the Southern District of New York, is the product of an intensive investigation by the U.S. Attorney's Office and the U.S. Postal Inspection Service.
As Chairman of the President's Corporate Fraud Task Force, I am particularly pleased to announce that the Task Force is fulfilling the President's directive to marshal federal law enforcement resources to search out and eradicate corporate fraud. Today's actions demonstrate the benefits of coordination among the Department of Justice, the Securities and Exchange Commission and investigative agencies like the U.S. Postal Inspection Service. The Task Force is committed to a vigorous and aggressive approach to attacking and rooting out corporate fraud. The task force will seek to identify the bad actors and put them behind bars.
The company identified in the complaint of today is Adelphia, the sixth-largest cable operator in the United States and one of the largest issuers of so-called junk bonds. Its bankruptcy filing last month was the fifth-largest in U.S. history. Together with their co-conspirators in senior management, the complaint alleges that members of the Rigas family that controlled Adelphia systematically looted the corporation. In less than four years, the complaint alleges, they stole hundreds of millions of dollars and through their fraud caused losses to investors of more than 60 billion dollars.
The defendants in today's complaint are:
- John J. Rigas, the founder and formerly chairman of the board of directors and chief executive officer of Adelphia;
- Timothy J. Rigas, formerly executive vice president, chief financial officer, chief accounting officer and treasurer of Adelphia, as well as the son of defendant/CEO John Rigas;
- Michael J. Rigas, another son of defendant/CEO John Rigas and brother of CFO Timothy Rigas and formerly executive vice president for operations, secretary and board member of Adelphia;
- James R. Brown, formerly vice president for finance for Adelphia, with responsibility for preparing Adelphia's financial statements and public disclosures regarding its performance; and
- Michael Mulcahy, who was former director of internal reporting for Adelphia, and who supervised all of the money flowing into and out of the company, reporting its financial condition to lenders, and keeping records of expenditures by the Rigas family and the entities they owned and controlled.
As the complaint alleges, the defendants intentionally submitted false information to lenders and made false statements to the public in order to maintain their failing company's stock price. Adelphia had grown enormous through an aggressive acquisition strategy during the late 1990s. Beginning in 1999, the complaint alleges that the defendants caused the company to borrow more than 2.28 billion dollars that it concealed form the public by intentionally omitting it from its required SEC filings. The complaint also alleges that the defendants fraudulently reported the company's operating results by creating millions of dollars in fake management fees, entering into sham transactions with other companies and outright falsifying the numbers of cable television and Internet subscribers. The complaint also alleges that the defendants repeatedly lied to the banks that were lending money to the company by submitting false information about Adelphia's financial performance.
In addition to this massive securities fraud and bank fraud scheme, the complaint alleges that the defendants victimized Adelphia shareholders through a wide variety of, quite frankly, brazen thefts.
- The defendants caused the company to pay out over $252 million dollars to satisfy margin calls against the Rigas family brokerage accounts.
- The defendants used fraudulent documents and misleading accounting tricks to obtain more than $420 million dollars in Adelphia stock for the Rigas family without paying a dime, and lied to the company's independent directors that they were paying cash for the stock.
- Defendant CEO John Rigas lent himself more than $66 million dollars out of company funds without making required disclosures.
- The defendants caused the company to spend $13 million dollars on building a golf course on defendant CEO John Rigas's land.
- The defendants forced the company to pay for airplanes and luxury apartments for the personal use of the Rigas family members, unrelated to Adelphia's business.
This investigation is one of the many significant corporate fraud matters on which the Corporate Fraud Task Force has focused its attention since its creation less than two weeks ago.
Make no mistake. We are committed to bringing the collective resources and expertise of federal law enforcement, including the many dedicated career law-enforcement agents and prosecutors, we're committed to bringing this expertise to bear against corporate frauds wherever they occur.
I want to commend task force member U.S. Attorney Jim Come for his and his team's outstanding work on this case. I also want to thank Ken Newman and the U.S. Postal Inspection Service for their diligent efforts on this investigation.
As chairman of the Corporate Fraud Task Force, I am also pleased to announce this morning the Attorney General's designation of the Chief of the U.S. Postal Inspection Service as a member of the Task Force. The Postal Inspection Service will bring a wealth of experience, expertise and resources to our fight against corporate corruption.
These charges are also the product of a close cooperation between Mr. Comey's office and Tom Moreno, the U.S. Attorney for the Middle District of Pennsylvania. Their coordination is a good example of the cooperative effort against corporate crime that the task force is encouraging.
Now, Mr. Cutler will make an announcement, after which we will be available for some questions.
*NOTE: Mr. Thompson frequently speaks from notes and may depart from the speech as prepared. However, he stands behind the speech as presented in written format.