Adelphia executive lied to investors, jurors told
NEW YORK — Adelphia Communications' former finance chief Timothy Rigas lied to investors about company debt, subscriber growth and upgrade of cable-television lines, an ex-director of investor relations testified yesterday.
Karen Chrosniak said at the fraud trial of founder John Rigas and two of his sons, Michael and Timothy, that her boss ordered that 60,000 customers of Adelphia's home-security business be falsely counted as basic cable subscribers.
She said Adelphia understated debt and overstated its subscribers and upgrade because it didn't meet Wall Street analysts' expectations before the company's bankruptcy in June 2002. Chrosniak said she knew it was wrong to prepare press releases and investor materials with phony numbers that included the 60,000 home-security subscribers.
"I didn't want to confront Tim," Chrosniak told federal jurors in New York.
Prosecutors claim the Rigases hid $2.3 billion in debt at Adelphia, the No. 5 U.S. cable-television operator, stole $100 million and lied about revenue and operations. They say the Rigases caused Adelphia to pay $252 million to satisfy margin calls by four lenders, beginning as early as 2001. The Rigases secured those loans with shares of Adelphia stock.
Chrosniak, 36, also said she received inquiries from investors in 2001 and 2002 about margin loans and the stock price at which lenders would call the loans. She said Timothy Rigas told investors in May 2001 that the family had between $190 million and $250 million in such loans, and the price was "much lower than where Adelphia's stock price was currently trading."
She said Timothy Rigas said the range for margin calls was $12 to $15 a share at a time when the stock was around $40. Chrosniak said she maintained that line to investors into early 2002 as she "adamantly denied" any Rigas margin calls.
She said she didn't learn about actual margin calls until late April 2002, when she heard assistant treasurer Michael Mulcahey tell Timothy Rigas that Deutsche Bank had called a loan. Timothy Rigas told Mulcahey to "go ahead and pay it." Prosecutors say Adelphia paid $50 million in margin loans to Deutsche Bank.
The Rigases and Mulcahey, 46, are charged with conspiracy, securities fraud, wire fraud and bank fraud.
Chrosniak said she attended a meeting in early May 2002 with Timothy Rigas with a Moody's Investors Service analyst who asked if there was a margin call at $5 a share. Chrosniak said Rigas responded that there would be a call when the price fell between $3 and $4 a share. Prosecutors say that was a lie.
Chrosniak testified last week that the company's basic subscriber count improperly included 28,000 customers in Venezuela and about 15,000 in Brazil, as well as 39,000 who had only high-speed Internet service. Adelphia held only minority interests in the South American companies and couldn't properly report those customers as its own, she testified.
Chrosniak is helping prosecutors, who agreed not to charge her in return for her truthful testimony. Her ex-husband, Tim Werth, Adelphia's former director of accounting, pleaded guilty to fraud and will testify as a government witness.
Chrosniak said she conspired with James Brown, a former finance vice president, who also pleaded guilty and is helping prosecutors.
In her testimony yesterday, Chrosniak said that she, Timothy Rigas and Brown falsely told investors in meetings that Adelphia's subscriber base had grown by 0.5 percent at the end of 2001, to 5.8 million, when it actually fell 1.2 percent.
She said she and Timothy Rigas flew to Midwestern cities to meet investors. At those meetings, she said, they understated the amount of Adelphia's debt and the amount of money the Rigases had invested in company securities.