My name is James Rigas. I am fifty years old, the son of John Rigas, and the brother of Tim Rigas. You are probably not familiar with me since I was never charged with a crime and did not stand trial in 2004. Yet, having worked at Adelphia Communications Corporation from 1986 to 2002, I am able to offer a critical and fresh perspective on what happened at Adelphia during those years.
Allow me to begin by providing some personal background information. After graduating from Harvard College with a degree in economics and from Stanford University with a joint law and economics degree, I worked for close to two years at Bain and Company, a business consulting firm with offices throughout the world. I joined Adelphia Communications Corporation in 1986 just before the company became public, when it was already thirty-four years old and served approximately 200,000 customers. There, I served for sixteen years as an officer and a director, acting in a variety of executive positions carrying substantial managerial responsibility. Over the years, I gained experience in every aspect of Adelphia’s business, and was an active participant in Board of Directors meetings, financial conferences, and internal strategy sessions. From this vantage point, I believe that I am well-qualified to comment on the culture that prevailed at the company and to describe how an environment of fear—created in large part by heavy-handed government tactics—caused the tragic demise of a sound company.
To my knowledge, defense attorneys never asked me to testify at the 2004 trial. My own defense counsel, fearful of government reprisals, strongly discouraged me from doing so. In addition, prior to the summer of 2002, I, like my entire family, had never been in a moment of trouble my entire life. The actions of the federal government threw me into a state of complete shock, disbelief, and a prolonged period of emotional trauma. As a result, many thoughts I have long been anxious to express in public have thus far gone unsaid.
Before going any further, I must say that the string of events that began in 2002 at Adelphia is one that I, and others in my family, run through our heads over and over again. And I must acknowledge, with 20/20 hindsight, that the business decisions we made at Adelphia left the company vulnerable to the perfect storm of global events, financial conditions, and government reactions that caused the demise of an otherwise healthy company. The burden of that knowledge will remain with me throughout my life, and nothing that I say here today is meant to diminish that burden. I do know, though, that our business decisions were well-intentioned and well-considered, part of a long-term plan designed to grow a company in a consolidating and capital intensive business. At the time, we made these decisions firmly believing that we were leading the company in a direction that would benefit all interested parties. I also know that the Adelphia board as well as the outside professionals were well aware of each decision and that no one ever raised the slightest concern that Adelphia might be exposed to the type of storm that destroyed the company, much less the question of whether these business decisions or the way that they were disclosed were illegal.
The truth is that neither you nor the jurors had access to the real Adelphia story. Nearly everything presented at the trial was filtered through a false reality created by less than reliable witnesses highly motivated to please the government. To bolster their theories of wrongdoing, prosecutors called upon witnesses who were heavily beholden to the government through non-prosecution agreements and plea arrangements. I knew most of these witnesses and observed how terrified they were of the government investigations and the legal situation in which they suddenly found themselves in the spring of 2002. Much of the government’s case centered on evidence that had nothing to do with the complex accounting and disclosure issues that should have predominated.
Now, four years later, a wealth of discovery produced in a series of civil proceedings provides a much more complete and accurate picture of what occurred at Adelphia. The overwhelming testimony of Buchanan Ingersoll law partners, Deloitte and Touche auditors, Adelphia employees, and Adelphia vendors shows what the Rigases knew all along—that the family took virtually no significant actions at Adelphia without first consulting a number of well-qualified professionals—seasoned experts who carefully guided them through the many financial transactions undertaken by the company over a two decade period. I can tell you without qualification that when it came to matters of accounting and financial disclosure, my father and brother trusted explicitly in the ability of Deloitte and Touche and Buchanan Ingersoll to arrive at the right answers. I can also say that the company had a long-standing policy of providing these professional firms with all of the information that they needed to perform their jobs thoroughly and accurately. All transactions were subject to their review. Nothing was ever withheld from them. It is all the more significant, then, that neither the more than 100 Deloitte accountants nor the more than 15 Buchanan lawyers who worked on the Adelphia account over nearly a twenty-year period, spending countless hours each year at the company, ever thought that anything was improper about the transactions at Adelphia. In fact, the transactions oftentimes were guided, implemented, or suggested by these professionals. The record from the civil proceedings resounds clearly on these points. In addition, I know this to be true because I was there.
The independence of these professional firms was beyond question. Adelphia’s senior management had great respect for the knowledge and integrity of Deloitte auditors and Buchanan lawyers. There was never a question about whose judgment was considered authoritative on accounting, disclosure, and legal matters. Neither Deloitte nor Buchanan was ever threatened with loss of the Adelphia account. No professional was ever pressured to take a position opposed to his or her understanding of legal principles or ethical obligations. To the contrary, the Rigases were always prepared to defer to the superior expertise of these professionals. While at Adelphia, I took great comfort from my belief that both firms provided advice only after carefully researching and considering all relevant law and accounting standards. In my experience, they never hesitated to give strong and independent guidance within their areas of expertise. Any suggestion, then, that the Rigases, Deloitte, Buchanan, and perhaps other professionals were somehow involved in a massive plot to misrepresent Adelphia’s true financial position is sorely misplaced.
As I clearly remember and as the documents show, the independent members of the Adelphia Board of Directors likewise had full knowledge of Adelphia transactions, especially of those involving Rigas entities. They likewise enjoyed unfettered access to whatever information they needed to make sound decisions. Under the close direction of Buchanan and Ingersoll law partners they gave all necessary approvals to related-party transactions between Adelphia and the Rigases. They never once complained that they did not understand a transaction. They never once expressed concern about a transaction not being in Adelphia’s best interests. They never once questioned the integrity of the Rigases. I know all this to be true because I was there.
We now have a record which demonstrates that none of the participants saw anything wrong with the accounting done at Adelphia. Each of the accounting treatments alleged to be fraudulent by the government – the placement of co-borrowing debt on the books of the company actually using the money, the footnote disclosure on co-borrowing debt, the debt reclassifications, the netting of affiliate receivables, the operation of a joint cash management system, the marketing support payments – were all endorsed or recommended at the time by Deloitte and Touche auditors and, to the extent necessary, properly approved by Adelphia’s independent directors either at board meetings or at audit committee meetings.
Similarly, each of the public documents alleged to be false by the government – the 13d’s, the stock purchase agreements, the cross-receipts, the 10k’s and 10q’s - were either prepared or reviewed by Buchanan Ingersoll with almost no input from any Rigas. The lawyers were instructed to perform their work accurately and within the law. There was never any reason to think that there had been the slightest deviation from this standard. To this day, no Buchanan attorney has ever said that these documents were inaccurate, or that anyone misled them about their contents. But that has not stopped adversarial lawyers, both inside and outside the government, from endlessly parsing the complex wording of these documents to make litigation points and to make it appear as if something sinister was afoot at Adelphia. Their clear purpose has been to play “Gotcha” at the Rigas’ expense. The phrase “immediately available funds” is a case in point. Putting aside for a moment that “immediately available funds” can and did encompass assumption of debt, I can attest that no independent director ever mentioned the term as something they were relying on to satisfy themselves that “fresh” cash was coming into Adelphia from Rigas securities purchases. I strongly doubt that any independent director even noticed the term until some lawyer determined to craft a story for litigation purposes pointed it out to them. From Board of Director meetings going back to 1995 and continuing through March of 2002, the independent directors knew explicitly that the Rigases and their companies did not enjoy large reservoirs of cash from which they could draw to make securities purchases. Based on this fact alone, they would have known that the Rigases were buying securities with the only real funding that they had—money from the co-borrowing facilities.
There has in fact been a great deal of discussion in this case about who exactly knew that the Rigas entities used co-borrowed funds to purchase securities. I can say without equivocation that Deloitte auditors, Buchanan lawyers, Adelphia independent directors, Adelphia’s commercial banks, and Adelphia’s investment bankers all knew about this fact. Nothing was hidden from anyone on this topic. Accounting and disclosure decisions on the securities purchases were made with full knowledge.
The record demonstrates that no party ever thought, or could have possibly foreseen, that Rigas security purchases with co-borrowed funds would cause problems for Adelphia. Indeed, the independent directors, who knew all along how Rigas security purchases were being paid for, were put on even more explicit notice in early 2002. The SEC issued new guidelines on disclosing contingent debt which triggered specific discussions at Adelphia Board meetings and audit committee meetings on the precise amount of Rigas co-borrowing debt and on the precise use of those funds, including the purchase of Adelphia securities. What was the response of the independent directors, each of whom was a sophisticated businessman in his own right? They uttered not one word of protest or even of caution. They enthusiastically praised the Rigases for their leadership of Adelphia and proceeded to approve what they deemed to be long overdue compensation increases amounting to more than 100% for my brothers and me. Is this the reaction of men who anticipated a major disaster from Rigas security purchases with co-borrowed funds? Obviously not. It is the response of men who were pleased with Adelphia’s performance and who saw absolutely nothing wrong with the transactions at the company.
One of the factors which grossly distorted the trial record was the testimony of the government’s lead witness, Jim Brown. I was a good personal friend of Mr. Brown until he became a cooperating witness. During the spring and summer of 2002, he repeatedly and emphatically told me that all accounting and disclosure matters were handled properly at Adelphia. He was confident that he and the Rigases had done nothing to violate the law. But he also expressed tremendous fear that a jury would not understand the complicated issues involved and, since Adelphia had cut off his right to indemnification, that he would not have the funds necessary to defend himself adequately. He further confided in me that his wife would not stay married to him if he received a long prison sentence, and that he would do whatever it took to make sure that that did not happen.
From Brown’s testimony in subsequent civil proceedings, we now have conclusive evidence that he gave untruthful testimony at the criminal trial. Without delving into the many specifics of how Brown lied at trial – that would take too much time – it should be said that the false impression he left of pervasive wrongful conduct at Adelphia thoroughly poisoned the proceeding, making any kind of fair trial utterly impossible. Had Brown told the truth, the jury would have known that Adelphia and the Rigases had always acted in good faith and in careful reliance on the advice of outside professionals. No one had reason to worry that something improper had been done. Indeed, in stark contrast to Brown and a few other witnesses who either cooperated with the government or were paid large bonuses by the new anti-Rigas management of Adelphia, no employee has testified that they thought anything improper was being done at Adelphia, that the Rigases were engaged in any kind of wrongdoing, or that the Rigases had misled any of the outside professionals.
Today, nearly six years after entering into his plea arrangement, Jim Brown has still not been sentenced. Who knows if he will ever be? I now have the experience of visiting my father and brother in prison, while seeing Mr. Brown walk the streets of Coudersport a free man.
It is obvious that the professionals upon whom Adelphia and the Rigases relied should have played a pivotal role in this case. They after all are the people who were familiar with the appropriate facts and legal standards. Yet, despite having the burden of proving guilt beyond a reasonable doubt, the government called no Deloitte auditor, no Buchanan lawyer, no commercial banker, no investment banker, and no accounting expert to testify. The result was a case tried at an astonishingly superficial level, without adequate consideration given to the core accounting principles and disclosure standards at stake and with excessive attention given to trivial, twisted evidence designed to present the Rigases as bad characters. There was next to no discussion, for example, about the family’s ability to repay its portion of the co-borrowing debt, the key factor in determining how the debt should have been accounted for and disclosed.
Defense efforts were further crippled by the government’s non-disclosure of critical exculpatory information from a Buchanan partner, from bankers, from Adelphia vendors, and perhaps from others. Had the Rigases known that the government had interviewed Carl Rothenberger and other people critical to the case and that these people had said things helpful to the Rigases, the defense mounted assuredly would have been more vigorous and comprehensive.
As everyone familiar with the legal system knows, no competent defense attorney will call someone as a witness unless he or she knows what that witness will say on the stand. At the time of trial preparation, no potential witness from Buchanan Ingersoll or Deloitte and Touche would talk to Rigas defense attorneys, no doubt because the government was threatening to indict both the professional firms and certain individuals within those firms. Timely knowledge of Mr. Rothenberger’s favorable testimony would have been of immeasurable help to the Rigas defense.
A major fallacy of the government’s case is that the Rigases took advantage of Adelphia for their own benefit. This perception is simply untrue. To the contrary, everything undertaken at Adelphia while I was there was done to make the public company grow and prosper, sometimes at great risk to the Rigas family. The Rigases were at Adelphia and in the cable television business for the long-term. We were willing again and again to take on for Adelphia’s benefit investments that required longer horizons for success than most public investors were willing to accept. Assets strategic to Adelphia were bought as affiliated entities so that the public company could reap immediate and future benefits while the Rigases assumed the debt and associated risks.
Prestige Communications, for example, was acquired in part by Rigas entities only because Adelphia the public company did not want to incur more debt at the time. Recognizing the strategic value of the Prestige cable systems in Virginia and North Carolina to Adelphia, the family agreed to acquire the remainder of the Prestige systems in Georgia so that the deal could proceed. I can tell you that from a personal standpoint I had absolutely no interest in assuming more debt for the family, or in owning a few isolated cable systems in Georgia, but was persuaded to go along with the transaction because it was in Adelphia’s best interests. It was a complete mischaracterization to say that the Prestige transaction was entered into because it was a good investment for the Rigas family.
The same is true of the Rigas securities purchases. I recall vividly, and Board minutes reflect, how Adelphia’s investment bankers repeatedly advised the Rigas family to buy Adelphia securities because this would benefit the company and would be important for the success of public offerings. These recommendations were made with the knowledge of the investment bankers that the source of funding for the securities purchases was the co-borrowing facilities, and with their professional opinion that the family had the wealth to repay the loans.
I could recite many, many other instances where the Rigases subordinated their financial interests to those of Adelphia. At all times, the family wealth was tied closely to Adelphia’s financial fortunes.
No one can fairly assess the cause of Adelphia’s collapse in the spring of 2002 without knowing something about the quality of the company. In March of that year, it was a vital and substantial company performing very well operationally. It had successfully met the challenges posed by its recent large-scale growth, and was poised to join a few other companies as elite players in the cable industry. Its investment bankers were predicting that the company would be classified as investment grade in another year or two. It was a company known for its compassion and charitable works, the quality of its customer service, and its entrepreneurial vision. Optimism and energy abounded within the company. There was not the slightest hint from anyone of any impropriety at the company.
Adelphia did carry a large debt load, but like most of the cable television industry was in the process of consolidating and building sophisticated broadband networks that could accommodate a variety of advanced services. The company was merely doing what was necessary to remain strong in the increasingly competitive world of telecommunications. Without exaggeration, one can say that debt was the lifeblood of the cable television industry at that time.
What next happened must be put in the context of the dark atmosphere which took hold in U.S. financial markets after the collapse of the dot.com bubble, the loss of enormous value on Wall Street, the 9/11 terrorism attacks, and perhaps above all else, the fall of Enron, which led to criminal investigations and to the indictment and destruction of Arthur Andersen. A mood of deep suspicion and distrust hung over the stock markets and those executives who ran public companies.
Significantly, Adelphia’s use of off-balance sheet debt had been a common practice for many years prior to the public disclosure of Enron’s problems, during a period when off-balance sheet debt was considered to be a perfectly acceptable way of financing transactions. No one at Adelphia—including the Rigases and the professionals—could have foreseen the Enron collapse or the sudden change of attitude toward off-balance sheet debt. Yet, after Enron, the investment world did in fact begin to subject off-balance sheet debt to much greater scrutiny. The SEC modified its regulations to accommodate the escalating public concerns.
Consistent with the recommendations of the SEC, the company disclosed the amount of Rigas debt in a revised way. Although the investor reaction to this SEC recommended change was negative, it was, in the opinion of most financial analysts, also significantly overblown. Nevertheless, in the environment of the time, with headlines about off-balance sheet debt everywhere in the media world, the reaction was enough to send waves of dread through the corporate and legal offices of Deloitte and Touche and Buchanan Ingersoll. Paralysis and institutional self-preservation set in immediately. Overnight, the overriding purpose of these two large professional firms became not to defend the work they had done or the advice they had given, but to avoid becoming the next Arthur Andersen. Deloitte, in the days leading to the March 27 conference call, had been prepared to issue a clean audit opinion on Adelphia’s financial statements for 2001, indeed referring to their recent audit as “their best ever at Adelphia.” After the call, they refused to certify the financial statements and began an exhaustive re-examination of Adelphia’s books.
The government, meanwhile, was threatening to indict Adelphia, Deloitte, and Buchanan, spreading terror throughout each of these large organizations. I remember clearly how one of the Adelphia independent directors in May of 2002 told me that if I and other family members did not resign immediately from Adelphia, “the Feds were going to come in and shut the place down.”
When Deloitte could not agree with the SEC about how Rigas debt should be recorded, the fate of the 2001 financial statements was sealed. There would be no sign-off, and without it, no 10-k issued for 2001. As a result of having no annual report for 2001, Adelphia defaulted on its loans and cross-defaulted on its bond indentures, throwing the company into a severe liquidity crisis from which it never recovered. The reality is that few, if any, cable companies could have survived a similar chain of unforeseeable events resulting in a total cut-off of its funding. I am firmly convinced that the company, perhaps with some adjustments, would have recovered from the initial negative reaction had it not been for the intervening events and the failure of its long-time professionals to stand up for the work they had performed.
For my father and my brother, for my entire family, the spiral of events of the past six years has been horrific and unimaginable. I urge you to consider carefully the new information revealed in the civil discovery process, and also to give a fair hearing to my own remarks which are based on firsthand knowledge of events at Adelphia. I was at Adelphia to see how hard my father and my brother worked to build the company, really devoting the better part of their adult lives to the task. I was there to see their good faith reliance on the best professional advice they could find. I was there to participate in board meetings handled in an open, fair, and collegial manner, with agendas and resolutions carefully prepared under the direction of Buchanan Ingersoll attorneys. I was there to see investment bankers, independent directors, and outside lawyers strongly encourage the Rigases to purchase Adelphia securities, knowing that the purchases would be made with funds drawn from the co-borrowing facilities. I was there to see how a corporate culture emphasizing attitudes of caring and responsibility was created and nurtured. I was there and know that no one—not the Rigases, not the professionals, not the commercial or investment bankers, not the independent directors, not the employees—thought that anything was being done improperly. I was there and know that no one foresaw, or could have reasonably foreseen, the damages that ultimately resulted from the unlikely convergence of a multitude of complicated factors. I was there and categorically deny the notion that the professionals were somehow engaged in a grand conspiracy with the Rigases to fool the investing public, for I know that expert after expert reached independent conclusions only after diligent review and careful research. Finally, I have been there over the past six years to experience the enormous physical and emotional pain of a family, as we have experienced deteriorating health, the destruction of once impeccable reputations, the loss of practically all wealth created over lifetimes, and the rapid economic decline of the community and the region to which we are strongly attached. I ask that as you take all of this into consideration, you will open your heart and mind to the possibility that the situation at Adelphia and with the Rigases was not at all what you thought it was, and that this new awareness demands a drastically different approach to sentencing.
