Adelphia Paid Founding Family
Millions for Its Private Ventures
By ROBERT FRANK and DEBORAH SOLOMON
Staff Reporters of THE WALL STREET JOURNAL
Adelphia Communications Corp., shedding further light on self-dealing at the company, said it doled out hundreds of millions of dollars to the company's founding family to pay for everything from stock purchases to New York apartments, according to a securities filing.
The filing, released to the Securities and Exchange Commission late Friday, confirms previous reports of widespread self-dealing at the company and details a complicated network of private partnerships designed to conceal the transactions from the board and shareholders.
The filing said founder John J. Rigas and his family, who control 60% of the shareholder votes, used a special cash fund at Adelphia to finance a number of private ventures, including cable companies, share purchases and margin calls on privately held stock. In one example, the family used company funds to pay $174 million for margin calls on their stock. The company said none of the transactions were fully approved or disclosed to the board.
The filing also said Adelphia paid $12.4 million in 2001 to buy office furniture from Eleni Interiors, an Olean, N.Y., furniture store owned by Mr. Rigas. In addition, Adelphia purchased 50 vehicles in 2001 from a dealership called Preston Motors, in which Mr. Rigas has a beneficial ownership. Adelphia's special committee of independent board members, which is running the company, said it is also looking into whether company funds were used to build, buy or maintain Rigas family condos.
According to the filing, Adelphia paid for two Manhattan apartments occupied by Mr. Rigas's daughter, Ellen, and her husband, Peter Venetis. Adelphia also paid Mr. Venetis's salary of $1.3 million a year for running a New York venture-capital fund supported by the Rigases, called Praxis Capital Ventures. The report said the fund has made only one investment to date totaling $1 million.
The filing also said Adelphia advanced millions of dollars to Ellen Rigas's film-production ventures, called ErgoArts and SongCatcher Films, of which $3.6 million is still owed to the company.
The disclosures come as Adelphia's outside board takes control of the company from the Rigases and races to stave off a debt default or bankruptcy filing. Adelphia is under investigation by the SEC and two federal grand juries -- in New York and Pennsylvania.
Adelphia is continuing its efforts to sell assets to raise cash to fund its operations and support interest payments that are coming due, including a $50 million payment to bondholders the company already missed and is in danger of defaulting on. Mr. Rigas and his sons Timothy, James and Michael have all resigned from the board and from their executive posts at the company.
A company spokesman couldn't be reached for comment during the weekend. The Rigas family, through its attorney, declined to comment.
In the SEC filing, Adelphia said the Rigas family "refused to review or provide information" for the filing and that "certain other current and former officers, executives and employees of the company have been unavailable to review and provide information" for the report.
The SEC filing detailed the intricate series of business transactions in which the family allegedly used private partnerships to conceal their use of company funds for stock purchases and other private purchases. In 2001, the family bought more than $1 billion in company stock in a series of offerings in which the purchase price and terms were set by a committee comprised solely of members of the Rigas family, the filing said.
The filing said employees of the company may have "prepared documentation, including wire transfer receipts and bank paydown notices" in January to make one of the stock deals look like a cash transaction, rather than a deal funded with company-backed loans.
Confirming previous reports, the filing said Adelphia maintained a central cash fund called the Cash Management System, which the family allegedly used as a private bank.
In one example, the Rigas family used the funds to pay $174 million for margin calls after March 27, when the company disclosed its co-borrowings to the family and the stock began its precipitous fall, according to the filing.
The SEC filing also revealed the extent of self-dealing between Adelphia, the Rigases and the Buffalo Sabres hockey team. The team is 99%-owned by John J. Rigas, who controls the Sabres through a limited partnership known as Niagara Frontier Hockey LP. The filing reveals that Adelphia has "provided financing" to help the Rigas family buy its interest in the hockey team.
During 2001, Adelphia also loaned Niagara Frontier about $130 million to help recapitalize the team and keep it solvent, according to the filing. The filing also states Niagara Frontier paid Adelphia $3.4 million for "management services" during 2001 but that the money for these services appears to have come from the cash fund within Adelphia.
Write to Robert Frank at robert.frank@wsj.com and Deborah Solomon at deborah.solomon@wsj.com
Updated May 28, 2002 |
