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Adelphia Communications

The document summarizes the fraud case at Adelphia Communications Corporation, a cable television company founded by John Rigas. John Rigas and his sons were charged with looting the company of over $1 billion to fund their lavish lifestyles and cover personal investment losses. They perpetrated the fraud by inflating financial statements, hiding debts, and misusing company funds for their other businesses. Their fraud was uncovered when financial analysts discovered related party transactions not reported in SEC filings. This led to investigations, bankruptcy of the company, and prison sentences for the Rigas family members involved.

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Loren Juhasan
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358 views6 pages

Adelphia Communications

The document summarizes the fraud case at Adelphia Communications Corporation, a cable television company founded by John Rigas. John Rigas and his sons were charged with looting the company of over $1 billion to fund their lavish lifestyles and cover personal investment losses. They perpetrated the fraud by inflating financial statements, hiding debts, and misusing company funds for their other businesses. Their fraud was uncovered when financial analysts discovered related party transactions not reported in SEC filings. This led to investigations, bankruptcy of the company, and prison sentences for the Rigas family members involved.

Uploaded by

Loren Juhasan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ADELPHIA CHU2

Background
• Adelphia Communications Corporation
• Was a cable television company headquartered in Coudersport, Pennsylvania.
• Was the fifth-largest company in the United States before filing for bankruptcy in 2002
• Founded by John Rigas
• Fraud Case
• First reported in June 2002
• The CEO of Adelphia, John Rigas and his two other executives, Timothy and Michael Rigas,
were charged with looting the company “on a massive scale”
• Other key players involved include; James Rigas, Peter Venetis (son in law), Michael
Mulchachey, and James Brown
• The Rigas family was alleged of taking millions of dollars from the company to pay for luxuries
and to cover personal investment losses
• Based on available information about Rigas’ disbursements the amount he could have stolen
would sum up to be $1,000,000 per month
• In 2002 the company went bankrupt after their scandal was uncovered. John Rigas and his
sons were sentenced to prison
How was the fraud perpetrated
• They excluded billions of dollars of liabilities from their financial
statements
• Inflated earning and net income so that they could be highly
evaluated at Wall Street
• Used cash from Adelphia Communications to buy assets from Rigas’
other family-owned businesses
• Made private relationships with other entities, such as Citibank, to
cover crimes
• Changed journal entries to provide flaws for the Rigases to receive
more debt at no cost
Fraud Triangle
• Pressure
• Personal Financial Debt
• Lifestyle and Family
• Opportunity
• Family Dominated Business
• Poor Internal Controls
• Centralized Management Style
• Rationalization
• They used part of the money for charity purposes
• They thought that it would somehow benefit the company and its employees
stating “Our intentions were good, The results were not” during their trial
Uncovering of the Fraud
• The scandal broke out when a footnote in a quarterly earnings
statement revealed that the Rigas family had borrowed more than
$2,000,000,000 from the company.
• People then became suspicious, so a financial analyst did some
investigating and discovered $1,000,000,000 worth of off-the-book
related party transactions, specifically to Rigas’ other family owned
businesses
• This cause the SEC to investigate Adelphia Communications and had
them delay their 2001 annual report and re-report its financial
reports for the previous 3 years. Evidently, uncovering the Fraud.
Improvements to the Audit Sector
• The external auditor of Adelphia, at the time of their scandal, was
Deltoitte & Touche LLP
• Their Chief Executive said that the auditor “lacked objectivity”
(Retuers, 2011). Since then, they are now training employees to have
a higher degree of professional skepticism and place more focused on
related party transactions.

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