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Adelphia Scandal

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The Adelphia Communications scandal

The Adelphia Communications Scandal
Strayer University, Online

ACC 100
September 2009 The Adelphia Communications scandal Before I get into the scandal I would like to give a brief history on how the company was founded. In 1952 John J. Rigas started Adelphia with his brother Gus Rigas. The company was based in Coudersport, Pennsylvania. The purpose for starting this company was to employ many future generations of the Rigas family. When John entered the cable communications industry it was fairly new and developing. Unknowingly to him his company would become one of the largest cable television companies in the US approximately 20 years later. On July 1, 1986, the five existing cable companies underwent a re-organization by John Rigas. Clear Cablevision, Inc., Indiana Cablevision, Inc., Western Reserve Cablevision, Inc., and International Cablevision, Inc., The companies combined created Adelphia Communications, expanding their customer base to approximately 200,000 suscribers. In August 1986, Adelphia went public and Mr. Rigas completed the acquisition of three cable systems before the end of the year. By the end of 1989 Adelphia owned cable television systems throughout Florida, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Vermont, and Virginia.
By 1992 Adelphia had become the tenth largest television cable systems operator in the country. With all of the growth and profits that Adelphia Communications was generating it was one of the top earning cable companies in the county. However, on March 27,2002, officials at Adelphia discovered approximately $2.3 billion dollars in undisclosed debt through transactions between Adelphia and the Rigas’s other entitie through the family’s private trust, Highland Holdings. The way that the loans were set up made Adelphia liable if the other entities couldn’t pay back the loan. Investigations uncovered that the Rigas’ used the loans to purchase Adelphia stock and to purchase Cable properties outside of Adelphia. The investigation also uncovered more questionable activity such as the purchase of office furniture for Adelphia from another Rigas company at inflated prices, the building of a family golf course, the payment of the family’s personal staff on Adelphia’s dime, the personal use of the company’s airplanes and other vehicles. On top of using Adelphia’s funds for personal gains, the family also manipulated the company’s financial records to create a false picture of the company's financial condition. By June of 2002 investigations of the company’s financial records disclosed that Adelphia had greatly overstated its cash flow and the number of its cable subscribers for the previous year. Shortly after all of this was uncovered the company’s was delisted from the NASDAQ causing the stock to drop tremendously. The company later had to file for bankruptcy.
Some experts say that if it were not for the ENRON scandal that brought attention to off balance sheet debt that the Adelphia scandal most likely wouldn’t have been discovered so quickly. The aftermath of the scandal caused investors to lose out on billions of dollars, and the company had to file for bankruptcy. The company had to pay approximately $715 million to a government fund that was set up to pay back investors that lost money by the scandal. John Rigas was sentenced to 15 years in prison and his son Tim was sentenced to 20 years for his part in the financial scandal.

References
Szalai, G (2002). The adelphia scandal. Retrieved from http://www.allbusiness.com/services/motion-pictures/4869931-1.html
MSNBC, (2005). Adelphia founder gets 15-year term; son gets 20. Retrieved from http://www.msnbc.msn

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