Manhattan U.S. Attorney Announces Distribution Of More Than $728 Million To Victims Of Adelphia Securities Fraud
Largest Single Distribution to Victims in Department of Justice History
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that more than $728 million forfeited in connection with the Office’s investigation and prosecution of the Adelphia Communications Corporation securities fraud is being distributed to victims who suffered financial losses as a direct result of the fraud. In July 2004, John Rigas, the founder and former Chairman and Chief Executive Officer of Adelphia, and Timothy Rigas, the former Chief Financial Officer, were convicted in Manhattan federal court for their participation in a massive securities fraud scheme to defraud investors, creditors, and the public concerning the financial condition and operating performance of Adelphia. In April 2005, the Rigases, as well as other members of the family, agreed to forfeit more than 95% of the family’s assets to the Government. The Adelphia distribution is the largest single distribution of forfeited assets to victims in Department of Justice history.
Manhattan U.S. Attorney Preet Bharara said: “More than just prosecuting criminals who engage in fraud, this Office strives to return as much as possible to their victims. The return today of over $728 million to the victims of the Adelphia fraud was accomplished through the relentless efforts of our Asset Forfeiture Unit. Together with our law enforcement partners, the Southern District of New York will continue to recover as much money as possible on behalf of the victims of crime.”
On March 27, 2002, the Adelphia fraud became public after the company disclosed that it had lied about its financial condition to cover up accounting fraud and looting of its assets. When the company filed for bankruptcy on June 26, 2002, common stockholders lost the value of their securities and were unable to recover in the company’s bankruptcy proceedings.
In December 2004, the Government began proceedings to forfeit assets of both John and Timothy Rigas. In April 2005, the criminal forfeiture proceedings were resolved after the defendants, as well as other members of the Rigas family who were not criminally prosecuted, agreed to forfeit more than 95% of the family’s assets, including privately-owned cable systems and real estate, to the Government. Evidence presented in court at the criminal trial of John and Timothy Rigas demonstrated that the forfeited property, including the privately-owned cable systems, were purchased and/or upgraded with funds wrongfully taken from Adelphia. In addition, in April 2005, the Government entered into a non-prosecution agreement with Adelphia, resolving potential corporate criminal charges against Adelphia and its subsidiaries. As part of the non-prosecution agreement, the Government agreed that the cable systems forfeited by the Rigas family would be turned over to Adelphia in exchange for the company’s payment of over $700 million in cash and securities to be used to compensate victims. The Government’s forfeiture agreements with the Rigas family and Adelphia were intended to divest the Rigases of their fraud proceeds and to provide a fund to compensate security holders who lost money as a result of the fraud.
The complex process of notifying the large number of potential victims, processing more than 13,000 petitions, verifying pecuniary losses, and recommending a pro rata distribution of the forfeited funds to the Attorney General was managed on behalf of the Department of Justice by the Adelphia Victim Fund (“AVF”). The AVF is operated by Richard C. Breeden, Chairman of Richard C. Breeden & Co. and former Chairman of the Securities and Exchange Commission (“SEC”), who was appointed Special Master by the Department of Justice. The final determination of eligible victims and their loss amounts was made by the Department of Justice Asset Forfeiture and Money Laundering Section (“AFMLS”), in the Criminal Division, through its Victim Asset Recovery Program, which granted approximately 8,500 petitions for remission submitted by the victims of the Adelphia fraud and authorized the transfer of the proceeds of the forfeited assets, plus accrued interest, to the victims on a pro rata basis. The distribution is being made on the recommendation of U.S. Attorney Bharara pursuant to the Attorney General’s discretionary authority to grant petitions for remission.
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The case was investigated by the United States Postal Inspection Service. Mr. Bharara praised the work of those inspectors and thanked the SEC and AFMLS for their assistance in the case.
The Adelphia distribution brings the total amount forfeited and returned to victims by the United States Attorney’s Office for the Southern District of New York since FY 2005 to almost $2 billion.
Assistant U.S. Attorney Barbara A. Ward from the Office’s Asset Forfeiture Unit handled the criminal forfeiture proceedings and coordinated the distribution of the forfeited funds with the AVF, the SEC, and AFMLS.12-124