NEW YORK – In what could be the poster child case of the Bush administration cracking down on corporate fraud, three members of the family that founded troubled cable operator Adelphia Communications Corp. (ADLAE) were arrested Wednesday on conspiracy charges.
Company founder and former chairman and CEO John Rigas was arrested along with his son, Timothy, a former company chief financial officer, and Michael, another former company executive.
The three men, who are accused of treating the nation's sixth-largest cable company as if it were their own "personal piggy bank," could face up to 95 years in prison plus huge fines.
The complaint, unsealed in Manhattan federal court, accuses former John Rigas and his family of "using the company as the Rigas family's personal piggy bank at the expense of public investors and creditors."
"The scheme charged in the complaint is one of the largest and most egregious frauds ever perpetrated on investors and creditors," said Manhattan U.S. Attorney James Comey. He said the investigation is continuing.
The government alleges the former executives improperly used company funds for everything from personal loans, to constructing a $13 million golf course on the senior Rigas' property, to shuttling family members back and forth from a safari vacation in Africa.
Two other former executives -- James Brown, the 40-year-old former vice president of finance, and Michael Mulcahey, 45, former director of internal reporting of treasury functions -- were arrested in Coudersport, Pennsylvania and are expected to be presented in court in Williamsport, Pa.
The lengthy complaint alleges the defendants conspired to commit securities, wire, and bank fraud.
The U.S. Securities & Exchange Commission also filed a civil suit against the company, the five executives and another family member -- former executive vice president of strategic planning James Rigas for similar fraud charges.
Adelphia filed for bankruptcy protection last month following months of turmoil following the disclosure of $2.3 billion of off-balance-sheet loans guaranteed by the company to the Rigas family, allegations of overstated earnings, and questions about the company's accounting methods. Adelphia was the target of two federal grand jury probes in New York and Pennsylvania.
The arrests drew applause from the White House, which has been seeking to reassure investors and crack down on corporate fraud.
"The arrest today of five corporate executives on charges of securities fraud, wire fraud, and bank fraud is a clear sign of this administration's commitment to enforce the laws so justice can be done," said White House spokesman Ari Fleischer.
The allegations involving the former Adelphia executives is just the latest batch of bad news to roil a one-time stock market darling.
In the past year, disclosures about companies including Enron Corp., Tyco International, WorldCom Group Inc., and Global Crossing Ltd. have shaken investors' shattered confidence in the stock market.
Those named were all charged with one count of conspiracy, one count of securities fraud, four counts of wire fraud, and two counts of bank fraud.
If convicted, each defendant faces a possible maximum sentence of five years in prison and a $250,000 fine on each of the conspiracy and wire fraud counts; 10 years and a $1 million fine on the securities fraud count; and 30 years and a $1 million fine on each of the bank fraud counts.
The former executives were accused by the SEC of hiding $2.3 billion in the company's liabilities in off-balance-sheet entities controlled by family members. The SEC also accused the company of fraudulent misrepresentations to hide extensive self-dealing by the Rigas.
The criminal complaint alleges the Rigas family used more than $252 million in Adelphia funds to pay margin calls against loans the family had received.
John Rigas allegedly received more than $67 million in undisclosed loans from Adelphia and in 2001 and 2002 also received undisclosed cash payments from the company of at least $1 million per month.
It also states that Adelphia owned two condominium apartments in Manhattan. Prosecutors alleged that John Rigas' son-in-law had exclusive use of the apartments without paying rent from 1998 through May 2002.
The Associated Press contributed to this report.