Question 3

i) Perpetrators

In the Adelphia Corporation scandal there are three prepetrators

identified. They are John Rigas, Timothy Rigas and Michael Rigas. The

interesting fact are all the perpetrators work in family collaboration from the

father to the son

John Rigas

His full name is John J. Rigas. 79 years old and resides in Coudersport,

Pennsylvania. He is Adelphia's founder and until May 15, 2002, was its CEO and

Chairman of its Board. At all relevant times, J. Rigas and members of his

immediate family held five of Adelphia's nine Board of Director positions, and

exercised voting control of Adelphia shares. On or about May 15, 2002, J. Rigas

resigned from his position as CEO and Chairman of Adelphia, and on or about

May 23, 2002, resigned his position as a director of Adelphia, pursuant to a

request by the Special Committee.

Timothy Rigas

His full name is Timothy J. Rigas. 48 years old and resides in Coudersport,

Pennsylvania. He is J. Rigas' son and was, at all relevant times, Adelphia's CFO,

CAO, and Treasurer, as well as an Adelphia director. On or about May 16, 2002,

he resigned pursuant to a request by the Special Committee. Between

approximately December 1992 and June 2001, T. Rigas was chairman of the

Audit Committee of Adelphia's Board.

Micheal Rigas

His full name is Michael J. Rigas. 50 years old and resides in Coudersport,

Pennsylvania. He is J. Rigas' oldest son and was, at all relevant times, Adelphia's

Executive Vice President for Operations and Secretary of Adelphia until he

resigned pursuant to a request by the Special Committee on or about May 23,

2002. M. Rigas is an attorney licensed in the District of Columbia.

ii) Modus Operandi

In this case, the perpetrators John Rigas and Timothy Rigas was commit

for two chargers which are financial statement fraud and misappropriation of

asset. This fraud include hiding $3.4 billion from the financial statement and

withdrew the company money for personal use worth $2.3 billion.

How they did it?

In order to get more investor to invest into Adelphia Corporation or

ensure the current investor to remain maintain, they should give a great report

about their company in the side of management and financial. Therefore, they

were producing good income statement to show the public and meet the analysis

expectation eventhough they face a billion dollar of debt. To make sure this fraud

work smoothly, they were hiding the debt into ‘book off balance sheet’.

Beside that, they was used Adelphia money to fullfil their levish living

expenses. This is done by lending loan worth $2.3 billion to the Rigases for

personal use. All this money are using for construct their world class golf course

and buying luxury apartment in Manhatten and other places. All this loan was

shifted to unconsolidated affiliates and they used sham transaction and fictitious

document to show the loan have been repaid. Therefore Rigases can get the

money for free without any comitment to pay it back.

Then, Rigases also created private partnership with adelphia as a tool for

the self dealing scheme. This was done by making fund transfer through journal

entry that gave Adelphia more debt and the Rigases multi million dollar of asset.

Also, all the revenue of Adelphia’s subsidiary and other business are dumped

into one central account and the money will channel to Rigases pocket.

The diagram above explain how the transaction tooks place. For example,

for the funding of Rigases family owned farm, the expenses were classified under

landscaping, maintainance of Adelphia journal. The same thing also happen for

the ticket for buffalo sabre hockey, interior design shop and private car

dealership.

Question 4

The Red Flag for Adelphia Corporation Case

i) Crony

In Adelphia top management, it consist most of Rigases family

member. As a one family in the management, therefore it is easier for

them to commit a fraud because Rigases crony can control the

company management and financial.

ii) Luxury Lifestyle

All the Rigases have luxury lifestyle. Their lifestyle is beyond their

means. In fact of the expenses make are cannot afford by a normal

CEO. The expenses talked about are Rigases construct personal world

class golf course and own several luxury apartment in Manhattan and

other places.

iii) Embezzelment of asset

As the one who control the Adelphia, Rigases take this advantage by

using company asset for their own purpose. This is including using

Chief Executive OfficerJohn Rigas

Executive Vice President of Operation

Michael Rigas

Chief Financial OfficerTimothy Rigas

Adelphia money to fund their personal stock worrh $252 billion. They

also always use the company private jet including watching African

Safari where normal CEO just using car to do same purpose.

iv) Fictitious

All the information about Aldephia was been faked and hiding. The

purpose are to meet the analysis expectation and show the stability of

the company and the same time attract new investor. To fullfil this

purpose all the debt worth $3.4 billon are not appear in financial

statement and was hiding in the book off balance sheet.

v) Weak Internal Control

Eventhough this fraud are happen for long time ago, but it didn’t

detect by anybody. This is because the internal control of Adelphia is

very weak which all the transaction did not monitor well and even the

auditor committee didn’t identify all the fraud occur beside Rigases

control everything. As a result, a lot of fake transaction happen in the

Adelphia on behalf of Rigases entity.

Question 5

Conclusion

As a conclusion, court have charges John Rigas and Timothy Rigas 18

count for conspiracy, bank fraud and security fraud while Michael Rigas are

found not guilty for conspiracy and wire fraud. Timothy Rigas was sentenced for

20 years in prison while John Rigas only 15 years in prison as his age already old.

Deloitte & Touche the Adelphia auditor was sued for professional

negligence, breach a contract and other wrongful conduct. In order to continue

Adelphia subsidiary operation, Hanover Insurance was agree to credit $95

million.

All of the asset of internet communication was acquired and bid by Time

Warmer and Comcast Communication. To avoid bid war which estimated $21

billion, they was joint together to acquired the asset. While the line

telecomunication asset of Adelphia was acquired by Pioneer Telecomunication

for $1.2 million.

Last but not least, the fraud is the bad action that people should avoid.

Most of the case, people will happy at the beginning but lastly they will suffer

because they are watching by public and the economy fluctuation will make the

fraud detected especially when it involve with stock.