102 Adelphia, MCI,
BofA Offers $725m Each To US To Pay Fines
Potentially clearing the way for the sale of its cable systems, Adelphia Communications Corp. has offered to pay the federal government $725 million to resolve criminal and civil fraud actions against the company and its founder, a regulatory filing disclosed Thursday.
The settlement, if accepted by federal officials, would represent one of the largest in corporate history, just shy of the $750 million paid in 2003 by WorldCom Inc, now called MCI Inc., whose former chief executive, Bernard J. Ebbers, was convicted this month of securities fraud.
Adelphia -- Southern California's largest cable operator -- said it was making the $725-million offer to settle civil charges brought in 2002 by the Securities and Exchange Commission and end an investigation by the Justice Department.
"Adelphia is engaged in constructive discussions with the government," the company said in a statement, adding that "the terms of any settlement are still under discussion."
In recent years, federal authorities have extracted a series of large penalties in connection with a spate of corporate scandals. In addition to WorldCom's $750-million settlement, they include a $675-million settlement with Bank of America Corp. and Fleet Boston Financial Corp., which were charged with improper trading in mutual funds. This year, Marsh & McLennan Cos., an insurance conglomerate, agreed to pay $850 million to settle charges that it had rigged bids.
Adelphia, which is in Chapter 11 bankruptcy, has put itself on the block as a way to pay off creditors. Bidders have been eager for Adelphia to clear up its regulatory problems because they are unwilling to assume liabilities from a pending government investigation or lawsuit.
The company was forced to file for bankruptcy protection in 2002 after its stock lost billions of dollars in value in the wake of an accounting scandal and revelations that company founder John Rigas had used vast corporate sums for personal use. Rigas and his three sons, all top executives in the company, relinquished their roles.
Rigas, 80, and son Timothy, 48, were convicted in July of conspiracy and fraud for looting Adelphia and lying about its finances before the bankruptcy filing. They are scheduled to be sentenced in April.
Sources said this week that Adelphia was close to announcing a sale of the company to Time Warner Inc. and Comcast Corp. for slightly more than $17.5 billion.
In its statement Thursday, Adelphia said its earlier promise to decide by the end of March whether the company would be sold or would emerge independently from bankruptcy was a "goal," not a "deadline."
If the nation's two largest cable operators prevail in their joint bid, as expected, Time Warner probably would become Los Angeles' leading pay-TV provider. In dividing up Adelphia's 5.2 million subscribers, the two partners have agreed that Time Warner would end up with the firm's cable systems in L.A. and Orange counties, serving about 1.2 million customers. Comcast has agreed to contribute its own 500,000 subscribers in L.A. to Time Warner as part of the deal.
Also on Thursday, a Bankruptcy Court judge ruled that Rigas and his sons could access a portion of the $10 million they requested to pay defense costs in the criminal case and civil lawsuits.
The Rigas family asked the court to allow it to draw $10.2 million from 11 cable companies managed by Adelphia and owned by the family. Adelphia opposed the request, arguing that the frozen funds should be set aside for creditors. Judge Robert Gerber ruled that the Rigases could obtain funds from two of the 11 companies as long as the firms had enough cash and didn't tap Adelphia's funds.
Adelphia has argued that the Rigases have sufficient assets to pay for their own defense. Last year, the Rigases received $475,000 in insurance proceeds, $750,000 in proceeds from a hedge fund sale and $7.6 million from timber sales at a family-owned farm in Pennsylvania, according to court documents
WorldCom Auditor 'Blew It,' Jurors Told
March 30, 2005 / Eager to please WorldCom Inc. executives and line its pockets, auditing firm Arthur Andersen failed investors by missing the enormous fraud unfolding at the big telecom company, a lawyer for investors said Tuesday. Lawyer Sean Coffey, delivering his...
Eager to please WorldCom Inc. executives and line its pockets, auditing firm Arthur Andersen failed investors by missing the enormous fraud unfolding at the big telecom company, a lawyer for investors said Tuesday.
Lawyer Sean Coffey, delivering his opening statement on behalf of investors who lost billions of dollars in the collapse of WorldCom, said Andersen amounted to "see-no-evil, hear-no-evil, speak-no-evil auditors."
"It was their job to look under the hood, kick the tires and tell investors this company was doing its job," Coffey told jurors in U.S. District Court in New York. Instead, he said, Andersen "blew it," hurting hundreds of thousands of investors.
In sharp contrast, Andersen lawyer Eliot Lauer referred repeatedly to the "hardworking men and women" of the Chicago-based firm as victims of a carefully hidden fraud carried out by corrupt WorldCom executives.
"The fact that an auditor does not uncover a well-concealed management fraud does not mean the auditor was not up to speed," he said.
Lawyers for the investors, led by New York Comptroller Alan Hevesi on behalf of the state retirement fund, are seeking to recover billions of dollars from Andersen at the civil trial.
More than a dozen investment banks that underwrote WorldCom securities were once defendants in the same lawsuit but agreed to settle the case for about $6 billion.
Twelve former WorldCom board members also will pay more than $24 million out of their own pockets to settle the class-action claim.
Coffey told jurors that Arthur Andersen considered WorldCom a "crown jewel" client and was eager to rake in millions of dollars a year in consulting fees &emdash; a more lucrative business than auditing.
At the same time, Andersen became enamored of WorldCom Chief Executive Bernard J. Ebbers and Chief Financial Officer Scott D. Sullivan, and considered itself part of WorldCom's "team," Coffey said.
"They had to make these very demanding, high-profile executives happy," he said. "It meant not asking too many hard questions. It meant shrugging your shoulders and saying it's OK."
Investigators eventually uncovered $11 billion in fraud at WorldCom, which collapsed in 2002 but has since emerged from bankruptcy under the name MCI Inc.
Coffey said he would prove at trial that Andersen violated generally accepted accounting standards from 1999 to 2001.
Lauer, the Andersen lawyer, said the firm had spent more than 10,000 hours a year diligently carrying out audits for WorldCom and always followed industry standards.
And he noted that Ebbers and Sullivan were executives highly respected by Wall Street &emdash; at least before the massive fraud was uncovered &emdash; and that Andersen, like so many others, saw no reason to question their integrity.
"Auditors are not the CIA," Lauer said. "They are not the FBI. They don't use lie detectors. They don't have video cameras hidden in WorldCom. They don't have informants with tape recorders. They are accountants."
Andersen, a former Big Five accounting firm, was convicted in 2002 of obstruction for destroying tons of documents related to Enron Corp. late in 2001 while the government was investigating the Houston-based energy firm.
Two weeks ago, Ebbers was convicted of fraud, conspiracy and false regulatory filings. He faces sentencing in June and could spend the rest of his life behind bars.
Five other former WorldCom executives have pleaded guilty in the fraud and are awaiting sentencing.
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