A former Adelphia Communications Corp. director on Wednesday bolstered prosecution claims that founder John Rigas and two of his sons misled investors by saying they used only cash to buy $1.6 billion in company stock and debt.
Testifying in the Rigases' criminal trial in New York, former director Dennis J. Coyle said John Rigas told outside directors that he and his sons bought Adelphia-issued securities from 1998 to January 2002 to show their faith in the company. Adelphia was supposed to get cash in return, Coyle told the jurors.
Prosecutors allege the Rigases misled the public because they didn't put up all the cash they claimed to have invested.
"What was your understanding of what the company would receive in exchange for the sale of these securities?" Assistant U.S. Atty. Richard Owens asked Coyle.
"Cash," replied Coyle, who was a director from 1995 to 2003.
John Rigas, 79, and his sons Michael, 50, and Timothy, 47, are accused of hiding billions of dollars in debt at Adelphia, the fifth-largest U.S. cable television operator, lying about revenue and operations, and stealing cash and other personal benefits.
Owens told jurors in his opening arguments at the trial this week that the Rigas stock transactions were "completely crooked" because the family sought to reassure the public that Greenwood Village, Colo.-based Adelphia was sound.
Adelphia filed for bankruptcy in June 2002, a month before the Rigases were arrested.
Coyle said he learned the source of some of the Rigas cash in a conference call on March 27, 2002, when company officials discussed $2.3 billion in off-balance-sheet debt held jointly by Adelphia and private Rigas companies. Timothy Rigas, the former chief financial officer, said during the call that some of the debt had helped the Rigases buy securities, Coyle testified.
Coyle said he understood that the syndicated bank loans approved by the board's outside directors were for the "acquisition and construction of cable TV systems and working capital" and not to help the Rigases buy securities.
Coyle and other former directors face dozens of suits by shareholders and bondholders over securities losses.
The Rigases and a fourth executive, Michael Mulcahey, 46, are accused of securities fraud, wire fraud and bank fraud and of conspiring to commit those crimes.
Defense attorneys have said the Rigases didn't loot the company, as prosecutors allege, and that outside advisors approved all of the disputed transactions.
Owens had Coyle walk jurors through employment contracts for the three Rigases, which called for the company to pay their country club dues. Prosecutors say that the company paid $700,000 for Timothy Rigas to become a member of an exclusive country club.
Coyle also described the board's approval in July 1998 of the Rigas purchase of $150 million in stock, funded in part by the proceeds of margin loans. The four defendants face dozens of years in prison and forfeiture of $2.5 billion if convicted of defrauding creditors and investors.
The U.S. Securities and Exchange Commission has filed a civil suit against Adelphia; the three Rigases on trial; Mulcahey; James Brown, former vice president of finance; and a third Rigas brother, James.