Ethics

The Adelphia Story

How appropriate that Adelphia was named after the Greek word for brothers. Their "blood is thicker than business" ethics brought down one of the top cable companies in the United States. Now, John Rigas, founder and CEO, along with his sons, are charged with withholding crucial information to investors about off-balance sheet loans and treating Adelphia like a "personal piggy bank."

John Rigas started Adelphia, a cable company headquartered in Coudersport, PA, in 1952 with only $300, selling cable subscriptions door-to-door. He worked hard to keep the company within the family. His three sons occupied high-level posts—Tim Rigas as Executive Vice President and CFO, Mike Rigas as Executive Vice President of Operations, and James Rigas as Executive Vice President of Strategic Operations. For some time, no one questioned the Rigas family. Times were good. In 1999, Adelphia became a top cable company after its purchase of three cable systems within four months, creating a debt balance of $14 billion and doubling its subscriber base. Unfortunately, Wall Street began to watch Adelphia like a hawk, curious to see if it could handle its loan obligations as well as meet growth expectations in its subscriber base.

Feeling the pressure when their cable subscriber base was below industry standards, the Rigas family "found" 43,000 subscribers in Brazil and Venezuela, although Adelphia only had a minority ownership stake. They also counted customers of internet services, who did not even subscribe to Adelphia's cable. And to top it off, in 2001, Adelphia found another 60,000 cable subscribers from their home security services customers—of course none of these customers subscribed to Adelphia's cable either. The Rigas family also inflated earnings by booking fees that were supposedly paid to Adelphia by other Rigas owned businesses. They also used marketing funds provided by cable box manufacturers to reduce expenses instead of marketing a new digital...