By University student

COMPANY BACKGROUNDStarted by John Rigas and his

brother, Gus in 1972

“Adelphia” is the Greek term for “brothers”

In 1986 the corporation went public

In the late 1990’s became the 6th largest cable company

A Family Business Family business and always be ‘family business’

Run by the Rigas

Adelphia timeline

The rise and fall of Adelphia Communications and its founding Rigas family:

• 1924: John Rigas is born in Wellsville, N.Y.

• 1943: Graduates high school and drafted into the Army. He serves in World War II in Belgium, France and Austria.

• 1946: Discharged as private first class and enrolls at Rensselaer Polytechnic Institute in Troy, N.Y.

• 1950: Graduates in management engineering. Returns to Wellsville to work in the family restaurant and, later, a Sylvania plant.

• 1951: Pays $72,000 for a run-down movie theater in Coudersport, Pa.

• 1952: Pays $300 for a local cable franchise in Coudersport.

• 1953: Marries Doris Nielsen, who that year gives birth to Michael Rigas.

• 1954: John Rigas' brother, Gus, joins the franchise.

• 1956: Timothy Rigas born.

• 1972: The company incorporates as Adelphia, from the Greek for "brother.”

• 1983: John Rigas buys out Gus' stake as his three sons join Adelphia.

• 1986: Adelphia goes public.

• 1994: John Rigas pays $22 million for Buffalo Sabres stake.

• 1999: John Rigas has triple heart bypass and later is diagnosed with bladder cancer. That year he pays $8.5 billion for Century Communications, FrontierVision Partners and Harron Communications. That nearly doubles Adelphia's size, making it the No. 6 cable operator at the time, and adds greatly to its debt.

• 2000: Rigas backs an office tower in Buffalo and buys control of the Sabres.

• 2001: Rigas is inducted into the Cable Television Hall of Fame.

• 2002: In March, Adelphia discloses it provided collateral for $2.3 billion in loans to the Rigases. In May, as the stock plummets amid reports of financial scandal, Rigas and his family are forced out of the company. In June, Adelphia files for bankruptcy-court protection. In July, five executives — including John, Michael and Timothy — are arrested on charges of fraud. One pleads guilty and cooperates; the Rigases and Michael Mulcahey choose to go to trial.

The Fraud triangle is a framework designed to explain the reasoning

behind a worker’s decision to commit workplace fraud

• Pressure– is the motivation behind the crime and can be either personal financial pressure, such as debt problems, or workplace debt problems Eg: Maintenance of a lifestyle

• Opportunityo Means by which the individual will defraud the

organization. o As the top management consist of Rigas family member,

it is make to commit fraud become easier

• Rationalization o Rationalizations are often based on external

factors, such as a need to take care of a family, or a dishonest employer which is seen to minimize or mitigate the harm done by the crime.

Perpetrators

John Rigas79

Chief Executive Officer

Michael Rigas50

Vice President for Operation

Perpetrator

Timothy Rigas48

Chief Financial Officer

Modus Operandi

What was happen• Hiding 3.4 billion of debt• Withdrew money from the company for

personal use• Lying the public

o Rigas management manipulated the book to meet analysis expectation

How They Did It?• Adelphia backed $2.3 billion worth of

personal loans to the Rigases

• Rigas Management manipulated the books to meet analysts’ expectations and inflate the stock price

• Rigases created private partnerships w/Adelphia as a tool for the self-dealing schemes.o Fund transfers were made through journal

entries that gave Adelphia more debt and the Rigases multi-million dollar assets at no cost.

• Rigas Management commingled Adelphia funds with family funds causing Adelphia to fund non-corporate projects, such as:

o Personal loans• Its worth for more than 2 billions dollar• The loan was paid up by making false document

o Cash advances to the Buffalo Sabres

o $252 million to pay margin calls, or demands for cash payments on loans for which the family had put up Adelphia stock as collateral.

How They Did It?• Revenues from Adelphia subsidiaries and other

businesses were dumped into one central account. They used this account to pay bills.

• They also excluded they billion dollar from liability in financial statement by hiding it on the books ‘off balance sheet affiliates’

How the Fraud took placeTransaction Account from Adelphia Communications

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What happen to perpetrator?

The Red Flags

Crony• In Adelphia top management it consist of most of

Rigas family member• Its easy for them to commit fraud because they

can collaborate together

• John Rigas – Chief Executive Officer (CEO)• Tim Rigas – Chief Financial Officer (CFO)• Michael Rigas – Vice President of Operation

Luxury Lifestyle• The have luxury lifestyle• Their lifestyle is beyond the meets

• For Example,o Construct world class golf course for personal useo Own luxury apartment in Manhattan

Embezzlement of Assets

• The use a lot od Adelphia assets for personal purpose

• For Exampleo Always use company private jet including watching African safario Use Adelphia fund for personal stock worth $252 million

Accounting Anomalies• The debt did not appear as a liability on the

company balance sheet because it was hidden in the accounting record of off-balance sheet affiliates.

• Therefore, they can meet the analysis expectation and show the stability of the company, especially for attract the investor

Weak Internal Control• The fraud happen for a long time• A lot of false transaction happen in the company• For example,

o The Rigas have been make a lot of transaction on behalf of Adelphia for their personal family entities.