Opinion ID: 2725
Heading Depth: 2
Heading Rank: 1

Heading: The Rigas Family's Fraudulent Stock Purchases

Text: 14 The Rigases did not have enough cash to provide the promised fresh money for the shares they purchased to maintain control over Adelphia. The steps they took to purchase these shares constitute several of the charged frauds. The purchase agreements for the stocks required that at the closing date, the Rigases shall deliver to the Company the purchase price for the Shares in immediately available funds; Adelphia's public filings and press releases suggested to investors and analysts that the Rigases had paid cash for the stocks. However, this was not the case. Instead, for the earlier purchases, Defendants borrowed funds to pay Adelphia, but then caused Adelphia to use that cash to pay off other family debts. For the later purchases, Defendants caused Adelphia to move debt it owed under the Co-Borrowing Agreements from its books to the books of one of the RMEs. The process of moving debt from Adelphia's financial statement to one of the RMEs' financial statements was called reclassification, and the debt, itself, was referred to as having been reclassified. 15 As the government argued at trial, even if the RMEs had assumed Adelphia's debts, Adelphia was worse off than if the Rigases had paid cash and Adelphia paid down its existing borrowings. When the Rigases assumed debt from Adelphia under one of the Co-Borrowing Agreements, Adelphia's capital funding strategy was adversely affected in two ways: first, Adelphia would still be liable for those debts because the Co-Borrowing Agreements provided for joint and several liability, and second, had the Rigases paid cash, those funds could have been used to pay down the debts on the Co-Borrowing Agreements, thus freeing up the credit available for Adelphia. Most importantly, the Rigases misrepresented that they paid cash for the stocks, raising the necessary funds from margin loans, from leveraging their private cable properties, and from outside investors, and that this cash would be used to pay down debts. 16 The government introduced evidence supporting its allegations that Defendants engaged in fraudulent securities purchases through, inter alia, the testimony of former members of Adelphia's Board, the stock purchase agreements, bank records, general ledger journal entries relating to the sales, and borrowing and paydown notices for the bank creditors.