In the old days in Coudersport, a tiny Pennsylvania town at the northern edge of Appalachia, if you had trouble with your cable hookup, you simply called John Rigas to come over and fix it. If you needed a loan, or a few bucks for a local charity drive, you darn sure called him too. There didn’t seem to be anyone in this town of 2,600 that Rigas wouldn’t help, or didn’t like, which is maybe why Rigas seemed cut from the same cloth as his idol, the pundit Will Rogers.
Rigas’s other hero was Sam Walton, and like the folksy Walton, Rigas built his company, Adelphia Communications, from scratch into a giant corporation.
This sort of story has become so familiar in recent years that you almost don’t have to add the kicker. Yes, it all came tumbling down. Yes, Rigas’s company failed, and Rigas himself, along with two of his sons, is sitting in the dock, accused of the worst case of looting of any C.E.O. of the Enron era.
The difference is that unlike other supposed villains, Rigas, a 79-year-old son of Greek immigrants, was a genuine business hero, a pioneer in cable television. Many of the current corporate miscreants — think Dennis Kozlowski of Tyco — appear to be calculating and utterly unrepentant. Rigas, who has spent much of the past two years in a state of shock, is nothing if not likable.
And when he goes on trial this month in Manhattan’s federal courthouse, the jurors will confront the improbable: a central figure in a white-collar scandal who is as ordinary as they are.
The mystery of how Rigas, a frail, white-haired man who seemingly had neither the motive nor the disposition to commit a fraud, came so undone, has riveted his hometown. Some say the answer lies with his sons, who directed the company’s frantic growth in the late 90’s; others cite the family’s habit of blurring private interests and public ones, which was pretty easy to do in a remote company town like Coudersport.
Mystery or not, Rigas’s fall says a lot about America’s wave of business scandals. The explanation put forth by people from Alan Greenspan on down is that executives got greedy (as if that were something new), but Rigas, who never sold a share of his company’s stock, and didn’t get stock options either, doesn’t quite fit the mold. So what else was it?
However badly the Rigases behaved, they were helped along the way by lenders and investment bankers, auditors, lawyers, analysts — just about anyone whose job it should have been to protect the public. And this is what truly distinguishes the latter stages of the last bull market: not that a handful of executives got greedy but that the safeguards supposedly built into our financial culture stopped functioning.
Even to people familiar with Wall Street scandal, the central detail of this one remains astonishing. Somehow, the Rigases persuaded a network of commercial banks to lend to them more than $3 billion that not only the family, but also Adelphia, a public company with public shareholders, would be liable for repaying. The money was used, in large part, to buy Adelphia securities, which subsequently lost most of their value, as well as to make payments on stock the family had bought on margin. It was also used as a sort of A.T.M. to finance extravagances of the Rigases both small and not so small.
For instance, roughly $150 million was lent to John’s money-losing hockey team, the Buffalo Sabres; $3 million was blown on ”Songcatcher,” a movie produced by Rigas’s daughter, Ellen. Then there was the $13 million plowed into an unfinished golf course, a pet project of his son Tim, who had memberships in some 12 other golf clubs courtesy of Adelphia as well. Millions more were squandered by the Rigases’ use of the corporate Gulfstream III as a family taxi, particularly to shuttle John’s wife, Doris, on shopping trips, and some $45 million was advanced to John, apparently to finance his private businesses.
The Rigases never bothered to disclose that they had borrowed all this — and with Adelphia’s guarantee. So when the news broke, two years ago this March, the public stockholders discovered that they had bought into seriously misrepresented goods. The company collapsed and filed for bankruptcy, and the stockholders were wiped out. The Securities and Exchange Commission, which filed a civil complaint parallel to the criminal case, called it ”one of the most extensive financial frauds ever to take place at a public company.”
John Rigas; 47-year-old Tim, who made many of the major decisions in recent years; and 50-year-old Michael adamantly deny the charges. (A third son, 46-year-old James, also worked for the company but wasn’t indicted.) John and Tim Rigas, who talked at length for this article, admit to mistakes but not to any criminal scheme. The hockey money, the margin payments, the jet expense and the rest wasn’t looted, they say; it was borrowed. What’s more, they argue that the bank loans were sanctioned by accountants, lawyers, outside directors and even regulators and that, had the family’s former allies not turned against them, Adelphia would not have collapsed and their collateral would still be good.
Though that may be a stretch, it is undeniable that a lot of people in official capacities were in a position to prevent, or force the disclosure of, the curious coupling of family and company credit before it got out of hand. For one, Adelphia’s independent directors approved the ”co-borrowing” loans. Adelphia’s outside auditor, Deloitte & Touche, did urge Adelphia to disclose them but acquiesced when Adelphia resisted. Adelphia’s longtime securities counsel, the distinguished Pittsburgh firm Buchanan Ingersoll, knew about the co-borrowings as well. Finally, investment banks floated billions of dollars of securities to the public with detailed descriptions of Adelphia’s finances that somehow neglected to mention the extra $3 billion of indebtedness. Even the S.E.C. was aware that Adelphia and the Rigas family each let the other borrow on its own credit, an unusual arrangement that, by its very nature, was vulnerable to abuse. But the S.E.C. apparently never investigated it.
Later, when the loans were disclosed and the stock began to fall, each of the above parties affected aggrieved shock. It is not surprising: the scandal has spawned dozens of civil lawsuits, and no one is eager to admit any responsibility. That’s the downside of a country run by lawyers. And now that the stock market is back in the pink, a collective amnesia has settled over Wall Street, which takes comfort from the notion that the system essentially worked. The only problem is, it didn’t.