Background:
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."¹

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.² 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.³ 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.⁴ They also used marketing funds provided by cable box manufacturers to reduce expenses instead of marketing a new digital service.⁵

Soon, questionable business practices permeated the top ranks at Adelphia. In March of 2002, when the world discovered that the Rigas family borrowed $3.1 billion from Adelphia to buy Adelphia shares without disclosing the loan,⁶ many of their family secrets became exposed. Soon it became apparent that investors had not been getting a clear picture of Adelphia's business since 1999. The indictments that followed charged that Adelphia misrepresented earnings by $160 million in 2000 and $210 million in 2001.⁷

Some argue that John Rigas and his family didn't know they were doing anything wrong and that they didn't try hard to hide much. "I don't even think the Rigases necessarily worked hard to hide things from Wall Street," another cable insider said. "They had just always been marching to their own beat and probably felt they were entitled to keep doing so."⁸

Nonetheless, the Rigas family received little support outside of Coudersport, PA. With Adelphia's money readily available, they managed to live the high-life. From Manhattan apartments and Cancun condos to specially built golf courses and Ponderosas, the Rigas family had little left to desire.

What were some of the warning signs that could have clued us into what was really going on within the secure and private walls of Adelphia?

Early Warning Signals:
Family-first mentality—Blood is thicker than business ethics and don't air family dirty laundry.

• Off-balance-sheet arrangements: $3.1 billion in loans to the Rigas family co-signed by Adelphia for the purposes of buying stock, building a $13 million golf course, loaning money to the Buffalo Sabres Hockey team, purchasing timber rights, and buying $12 million in office furniture.⁹ The list goes on and on.
• Board with strong family ties: John Rigas and his sons, Michael, James and Timothy Rigas, were all on the board. In addition, Peter Venetis, son in law, occupied a seat on the board. Before getting caught with their hands in the cookie jar, they had a 20% stake in the company, 60% voting control and 5 of the 9 seats on the board.¹⁰
• Family received special treatment: John Rigas gave his wife Doris, a $371,000 contract to decorate Adelphia buildings with $12.4 million in furniture from a Rigas family business.¹¹
• The Rigas family used the corporate jets for personal trips including a trip to African Safari. In addition, they invested $130 million in the Buffalo Sabres hockey team and built a golf course on property owned by Adelphia.¹² With Adelphia's money, the Rigas family secured two New York City apartments reserved for John Rigas' daughter and her husband, Peter Venetis. Adelphia's money also paid Peter Venetis' salary of $1.3 million for running a New York City venture-capital fund, and funded his wife's independent films.¹³
• Family money and company revenue were indistinguishable for the Rigas family. Money from Adelphia's business, in addition to the businesses owned by the Rigas family, were all lumped together into one main account.¹⁴
• Adelphia supported many other Rigas family businesses. For example, Adelphia bought 50 vehicles from a car dealership, furniture, and design services from entities owned or invested in by John Rigas. In addition, even the snow removal, lawn mowing, and maintenance work at Adelphia facilities were performed by a Rigas family-owned business.¹⁵
• Aversion to publicity—No strict financial disclosure. Adelphia kept a real low profile. The Rigas family provided limited specifics on their financials and strategy.¹⁶ This was further exacerbated by their home-base which was in a secluded, hard to reach area, Coudersport, PA. Investors and analysts were not enthusiastic about traveling to their headquarters which required a flight to Buffalo and then a puddle-jumper to Coudersport.¹⁷
• The town of Coudersport, PA, was treated like family as well. According to the people of the town, John Rigas ate at Kaye's Hometown Restaurant on Main Street and kept the Coudersport theater ticket prices at $3.50 per ticket. He also hosted a huge Christmas party every year for 1,300 children, giving each child a gift from the Rigas family. The Rigas family also brought in the Buffalo or Rochester symphony orchestra to provide a free concert for Coudersport and Adelphia employees.

Conclusion:
Adelphia never managed to successfully transition from a family-owned operation to a public company with shareholders and SEC regulations. The Rigas crew, however, did successfully manage to topple a huge multi-billion dollar company by treating the company as a free resource of funds and thinking of the family wants and desires first. Adelphia's story is a sad one because it is a tale of a man who brought economic growth and benefit to a small town in Pennsylvania while building an empire with a mere $300, but allowed greed, poor judgment, and a warped "family-first" mentality tear it all down.

¹Dillon, Nancy and Corky Siemaszko. "These little piggies went to market. Biz titans cashed in—now it's costing everyone." New York Daily News, June 9, 2002: News; Pg. 4.

²Buffalo News. "Rigas Family acted as though Adelphia wasn't publicly held." May 26, 2002: Business, Pg. B7. ³ Buffalo News. "The company that lies built." July 28, 2002: Business; Pg. B13.

⁴Zremski, Jerry. "Rigas indictments outlined; founder, 4 others face charges." The Buffalo News, September 24, 2002: News; Pg. A1.

⁵ Grover, Ronald. "Adelphia's fall will bruise a crowd." Business Week, July 8, 2002: Number 3790; Pg. 44.

⁶Caruso, David. "Founder Rigas ran Adelphia as family business: But things taken too far as filings reveal perks granted on company's tab." CanWest Global Communications Corp, May 28, 2002: Business; Pg. B10.

⁷Zremski, Jerry. "Rigas indictments outlined; founder, 4 others face charges." The Buffalo News, September 24, 2002: News; Pg. A1.

⁸Szalai, Georg. "A public firm that craved privacy." The Hollywood Reporter, July 18, 2002.

⁹Buffalo News. "Rigas Family acted as though Adelphia wasn't publicly held." May 26, 2002: Business, Pg. B7.

¹⁰Buffalo News. "Rigas Family acted as though Adelphia wasn't publicly held." May 26, 2002: Business, Pg. B7.

¹¹Caruso, David. "For years, Rigas treated Adelphia like a family business." The Associated Press State & Local Wire, May 27, 2002.

¹²Beck, Rachel. "Executives showered with perks that investors often not told of." Associated Press Worldstream, August 9, 2002.

¹³Facts on File World News Digest, June 25, 2002: Pg. 497A1. "Business: Adelphia Ousts Founders, Goes Bankrupt; Other Developments."

¹⁴Robinson, D. "The company that lies built." Buffalo News, July 28, 2002: Business; Pg. B13.

¹⁵Robinson, D. "The company that lies built." Buffalo News, July 28, 2002: Business; Pg. B13.

¹⁶Szalai, Georg. "A public firm that craved privacy." The Hollywood Reporter, July 18, 2002.

¹⁷Caruso, David. "For years, Rigas treated Adelphia like a family business." The Associated Press State & Local Wire, May 27, 2002.