Adelphia Lied to Its Lenders, Exec Says

Adelphia Communications Corp.’s former vice president of finance, James Brown, testified Wednesday that the company reported one set of inflated financial results to bank lenders and kept a secret set of books to track the manipulations.

Brown testified at the fraud trial of founder John Rigas and his two sons, Timothy and Michael, that Adelphia lied to banks about results to avoid loan defaults and to lower its borrowing costs. Brown said he and then-finance chief Timothy Rigas, 47, oversaw the fraud before the June 2002 bankruptcy filing of Adelphia, the No. 5 U.S. cable television operator.

The Rigases are charged with conspiracy, bank fraud, securities fraud and wire fraud. They pleaded not guilty.

Brown showed jurors black binders of internal reports that tracked misstatements to the banks about compliance with loans to the company and family businesses. Separate black binders tracked external reports to lenders that contained falsified financial data for Adelphia and its affiliates and subsidiaries.

“One could see the real results of the borrowing groups compared to what had been reported to the banks,” Brown told jurors in federal court in New York. “Tim Rigas said, ‘We don’t want to fool ourselves.’ ”

Brown, 41, pleaded guilty to conspiracy, bank fraud and securities fraud at Adelphia and is cooperating with prosecutors in a bid to reduce a possible 15-year prison term. He is the highest-ranking insider to testify against the Rigases, who are accused of hiding $2.3 billion in debt, stealing $100 million and lying about revenue and operations.

Brown also said that Adelphia sent false reports on its compliance with the provisions of bond indentures.

In his third day of testimony, Brown said that former Assistant Treasurer Michael Mulcahey, who is on trial with the Rigases, helped prepare fraudulent statements for lenders on three syndicated credit facilities. Those loans included $850 million borrowed in May 1999, $2.25 billion in April 2000 and $2.03 billion in September 2001.

Adelphia’s stock collapsed in late March 2002 after the company said it was liable for $2.3 billion in off-balance-sheet borrowings by Rigas family businesses under the loans.