Rigases Hid Nature of Deals, Prosecutors Say

Lawyers prosecuting Adelphia Communications Corp. founder John Rigas attempted Thursday to show that the Rigas family hid the true nature of its financial dealings with the cable TV company from investors, and even from a director.

The first two witnesses of the day -- an investor who lost money on Adelphia stock and one of the few independent members of the company’s board, testified that they had been unaware that Adelphia could be liable for hundreds of millions of dollars the Rigases borrowed from 1998 to 2001 to buy Adelphia stock and debt.

Former Adelphia director Dennis J. Coyle told prosecutors that when he approved the sale of stock and debt to the Rigases he expected that it would lower the company’s debt load, not increase it.

Prosecuting attorney Richard Owens asked Coyle how he expected the firm to be compensated for the millions of shares purchased by the Rigas family.

“Cash,” Coyle said.

But instead of getting cash Adelphia took on debt that did not appear on the balance sheet, according to the prosecution.

As the company issued new stock in the late 1990s to finance numerous acquisitions, the Rigases borrowed to buy shares in order to maintain control of the company and lead investors to believe the family was putting its own money on the line, prosecutors said.

By the time Adelphia revealed to investors how much Rigas family debt the company had piled up through co-borrowing arrangements, the number had ballooned to $2.3 billion, a revelation that led to the collapse of the firm.

Adelphia founder John Rigas, his sons Michael and Timothy, and a former company executive are on trial in federal court accused of 23 counts of securities, wire and bank fraud and making false statements to the Securities and Exchange Commission. All four have denied the charges.

The first witness called was Christopher Pelto, an investor whose shares plummeted after the disclosure of off-balance-sheet loans to the Rigas family in March 2002.

Judge Leonard Sand prohibited Pelto from testifying to the amount of his losses.

Pelto said Adelphia stock was the largest holding in his portfolio and that he continued to buy shares even after the disclosure, believing the market must be overreacting to the news.

“I had anticipated there would be an additional press release explaining what was backing that debt up,” he said.

In addition to the loans to the Rigas family, which appeared on financial statements as cash payments to Adelphia, Pelto said he did not know the company was spending $13 million on a golf course or $26 million for timber rights on land purchased for the Rigas family ranch.

“I thought they were a cable company offering TV and data services,” he said.

Coyle, the director, said those expenditures, and many of the transactions benefiting the Rigas family, were never approved by the board.

Asked by Owens whether the purchase of timber rights would be covered as a permissible transaction under the company’s bylaws, Coyle said, “definitely not.”