Opinion ID: 1435420
Heading Depth: 2
Heading Rank: 1

Heading: The New York Action

Text: On September 23, 2002, a grand jury sitting in the Southern District of New York returned an indictment against John and Timothy Rigas, Michael Rigas (Adelphia's Executive Vice President of Operations and another son of John Rigas), and Michael Mulcahey (an Adelphia executive but not a member of the Rigas family). See United States v. Rigas, et al., No. S1-02-cr-1236 (S.D.N.Y.). A superceding indictment, returned in July 2003, charged the defendants with conspiracy to commit an offense against the United States in violation of 18 U.S.C. § 371. The objects alleged by the conspiracy count were numerous: securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5; wire fraud in violation of 18 U.S.C. §§ 1343 and 1346; making false and misleading statements in SEC filings in violation of 15 U.S.C. § 78ff; falsification of the books of a public company in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5), and 78ff, and 17 C.F.R. § 240.13b2-1; and bank fraud in violation of 18 U.S.C. § 1344. The Rigases were also charged in twenty-two substantive counts of wire fraud, bank fraud, and securities fraud. The New York Indictment was supplemented by a Bill of Particulars on January 2, 2004. After a four-and-a-half month trial, the jury found John and Timothy Rigas guilty of: (1) conspiracy to commit securities fraud, to make false statements to the Securities and Exchange Commission (SEC), to falsify Adelphia's books and records, and to commit bank fraud; (2) securities fraud in connection with the purchase or sale of Adelphia Class A stock, debentures, and notes; and (3) bank fraud. They were acquitted of wire fraud. The jury did not reach a conclusion about whether wire fraud was an object of the conspiracy. The Second Circuit reversed one of the two bank fraud counts, but affirmed the remaining convictions. Rigas, 490 F.3d at 236, 239. John Rigas received a sentence of five years' imprisonment on the conspiracy count, and a total combined sentence of twelve years on all the counts. United States v. Rigas, No. 02-cr-1236, 2008 WL 2544654, at  (S.D.N.Y. June 24, 2008). Timothy Rigas received a sentence of five years imprisonment on the conspiracy count, and a total combined sentence of seventeen years on all counts. Id. Financial penalties were governed by a Settlement Agreement between the Government and the Rigas family, including John Rigas, Doris Rigas, Michael Rigas, Timothy Rigas, James Rigas, and Ellen Rigas Venetis. The Settlement Agreement did not apply to any tax violations.
Count One of the New York Indictment alleges a wide-ranging conspiracy (1) to create the false appearance that Adelphia's operating performance was strong and that Adelphia was reducing its debt burden, (2) to use Adelphia assets for the personal benefit of members of the Rigas family, and (3) to make false and misleading statements. [4] We focus on the second aspect of the conspiracy, which most closely overlaps with the charges in the Pennsylvania Indictment.
The New York Indictment alleges that the Rigases used Adelphia funds  [a]mong other things ... to construct a golf course on land primarily owned by JOHN J. RIGAS; routinely used Adelphia's corporate aircraft for their personal affairs, without reimbursement to Adelphia; and used at least approximately $252,157,176 in Adelphia funds to pay margin calls against loans to the Rigas family. New York Indictment ¶ 62 (emphasis added). The New York Bill of Particulars provided specific allegations about some of the other things the Rigases used Adelphia funds for. For example, according to the Bill of Particulars: Adelphia purchased real estate from Rigas family members above market value without the property being conveyed to Adelphia; Adelphia purchased real estate for Rigas family members and paid to maintain and renovate that property; Adelphia paid the Rigases' property taxes and insurance premiums; Adelphia paid golf club membership dues for the Rigases, paid expenses related to Ellen Rigas's wedding, and purchased 100 pairs of slippers for Timothy Rigas. The New York Bill of Particulars also alleges that Adelphia made charitable contributions on behalf of the Rigases. [5]
From about 1999 to 2002, Adelphia advanced millions of dollars in cash to JOHN J. RIGAS, TIMOTHY J. RIGAS and MICHAEL J. RIGAS, in excess of their publicly disclosed compensation. New York Indictment ¶ 169. Other unnamed family members also received substantial amounts of cash. Id. In about 2001, John Rigas began receiving monthly cash payments of about $1 million. In April 2001, the Rigases caused Adelphia to file an amended annual report on Form 10-K, which falsely understated the total amount of compensation to [the Rigases and others] by failing to include the[se] cash advances. Id. According to the New York Bill of Particulars, these cash advances totaled nearly $80 million.
In June 2001, the Rigases began constructing a golf course on land in Coudersport, Pennsylvania. Adelphia owned a small portion of the land, while John Rigas owned the rest. The Rigases used approximately $13 million in Adelphia funds on golf course equipment, development, and construction.
Adelphia operated three airplanes out of an airport in Wellsville, New York. The Rigases, and other members of the Rigas family, routinely used the Adelphia Airplanes for personal travel without reimbursing Adelphia. Id. ¶ 192.
The Rigases also took Adelphia stock without paying for it and used Adelphia assets to pay for their purchases of Adelphia stock. The Rigas family claimed that they were reducing Adelphia's debt by purchasing substantial amounts of Adelphia stock, but they never actually paid for that stock. Instead, Adelphia purportedly was compensated for those securities by `assumptions' by certain [Rigas Family Entities] of debt owed by Adelphia. New York Indictment ¶ 74. These assumptions had no financial significance because Adelphia remained jointly and severally liable for all such debts. Id. According to the New York Bill of Particulars, the Rigases also took shares of common stock owned by Adelphia from Adelphia's vault and placed them in an escrow account for the benefit of the Buffalo Sabres, a hockey team owned by the Rigas family. Finally, the Rigas family purchased Adelphia stock on margin using stock loans from a number of banks. When the banks made margin calls against the loans, the Rigases had Adelphia pay the loans. According to the New York Indictment, [t]he Rigas Family did not reimburse Adelphia for the funds used to pay the margin calls. ¶ 185.
The substantive counts in the New York Indictment included five wire fraud counts. They charged that Adelphia made the following fraudulent wire transfers: (1) a September 18, 2001 transfer of $5 million; (2) an October 1, 2001 transfer of $4.5 million; (3) a March 28, 2002 transfer of about $6.4 million; (4) a March 29, 2002 transfer of about $3.9 million; and (5) an April 12, 2002 transfer of about $4.3 million. The Rigases were acquitted of these charges.