Federal prosecutors said they are beginning to distribute more than $728 million forfeited by Adelphia Communications Corp. in 2005, a year after founder John Rigas and his son, former CFO Timothy Rigas, were convicted on securities fraud and bank fraud.
The payout, which will go to former Adelphia investors, is the "largest single distribution of forfeited assets to victims in Department of Justice history," U.S. Attorney for the Southern District of New York Preet Bharara said Monday. Most of the funds that will go to the victims were collected by Adelphia in 2005 by selling its cable systems to Time Warner Cable (NYSE: TWC) and Comcast (Nasdaq: CMCSA).
The Adelphia scandal rocked the cable industry, after Rigas and his sons were accused hiding $3 billion in off-balance sheet debt, and using Adelphia's coffers as a personal piggy bank. Former Adelphia VP of finance Jim Brown was the star witness for prosecutors, after reaching a plea deal with the government in 2002.
Brown told jurors during the Rigas trial in 2004 that every financial statement that Adelphia released from 1996 to 2002 was fraudulent. Brown testified that he and Tim Rigas asked Scientific-Atlanta, now owned by Cisco (Nasdaq: CSCO), and Motorola to help the company create a series of "wash transactions" in which it the set-top vendors allegedly agreed to inflate the costs for their set-tops, and in return sent Adelphia checks that were supposed to be used for "marketing support."
In 2007, Motorola (NYSE: MMI) agreed to pay a $25 million fine to settle charges that were filed by the Securities and Exchange Commission related the Adelphia transactions. In 2006, Cisco agreed to a $20 million settlement related to the Adephia deals.
In November, John Rigas, 87, and Tim Rigas, 55, were transferred to a federal prison about 100 miles from Coudersport, Pa., their hometown and the previous location of Adelphia's corporate headquarters. Rigas, who has bladder cancer, is serving a 12-year prison term. Timothy Rigas is serving a 17-year term.
- see news release from the U.S. Attorney
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