CNN BREAKING NEWS
News Conference on Arrest of Former Adelphia Executives
Aired July 24, 2002 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: We are going to go live now to the Justice Department. The latest -- in the latest corporate scandal, this one involving Adelphia Communications.
Let's listen in.
LARRY THOMPSON, DEP. ATTORNEY GENERAL: ... fulfilling the president's directive to marshal federal law enforcement resources, to search out and eradicate corporate fraud. Today's actions demonstrate the benefits of coordination among the Department of Justice, the Securities and Exchange Commission and investigative agencies like the U.S. Postal Inspection Service. The task force is committed to a vigorous and aggressive approach to attacking and rooting out corporate fraud. The task force will seek to identify the bad actors and put them behind bars.
The company identified in the complaint of today is Adelphia, the sixth largest capable operator in the United States and one of the largest issuers of so-called junk bonds. Its bankruptcy filing last month was the fifth largest in U.S. history. Together with their co- conspirators and senior management, the complaint alleges that members of the Regis family that controlled Adelphia, systematically looted the corporation. In less than four years, the complaint alleges, they stole hundreds of millions of dollars and through their fraud caused losses to investors of more than $60 billion.
The defendants in today's complaint are: John J. Regis, the founder and formerly chairman of the board of directors and chief executive officer of Adelphia; Timothy J. Regis, formerly executive vice president, chief financial officer, chief accounting officer and treasurer of Adelphia; as well as the son of defendant CEO John Regis. Michael J. Regis, another son of defendant CEO John Regis and brother of CFO Timothy Regis and formerly executive vice president for operations, secretary and board member of Adelphia; James R. Brown, formerly vice president for finance for Adelphia, with responsibility for preparing Adelphia's financial statements and public disclosures regarding its performance; and Michael Mulcahy, who was former director of internal reporting for Adelphia, who supervised all of the money flowing into and out of the company and reporting its financial condition to lenders and keeping records of expenditures by the Regis family and the entities they owned and controlled.
As the complaint alleges, the defendant intentionally submitted false information to lenders and made false statements to the public in order to maintain their failing company's stock price. Adelphia had grown enormous through an aggressive acquisition strategy during the late 1990s. Beginning in 1999 the complaint alleges that the defendants caused the company to borrow more than $2.28 billion that it concealed from the public by intentionally omitting it from its required SEC filings. The complaint also alleges that the defendants fraudulently reported the company's operating results by creating millions of dollars in fake management fees, entering into sham transactions with other companies and outright falsifying the numbers of cable television and Internet subscribers.
The complaint also alleges that the defendants repeatedly lied to the banks that were lending money to the company by submitting false information about Adelphia's financial performance.
Now, in addition to this massive securities fraud and bank fraud scheme, the complain alleges that the defendants victimized Adelphia shareholders through a wide variety of, quite frankly, brazen thefts.
The defendants caused the company to pay out over $252 million to satisfy margin calls against the Regis family brokerage accounts. The defendants used fraudulent documents and misleading accounting tricks to obtain more than $420 million in Adelphia stock for the Regis family, without paying a dime, and lied to the company's independent directors that they were paying cash for the stock.
Defendant CEO John Regis lent himself more than $66 million out of company funds without making required disclosures. The defendants caused the company to spend $13 million on building a golf course on Defendant CEO John Regis' land. The defendants forced the company to pay for airplanes and luxury apartments for the personal use of the Regis family, family members, unrelated to Adelphia's business.
This investigation is one of the many significant corporate fraud matters on which the Corporate Fraud Task Force has focused its attention since its creation less than two weeks ago.
Make no mistake, we are committed to bringing the collective resources and expertise of federal law enforcement, including the many dedicated, career, law-enforcement agents and prosecutors who are committed to bringing this expertise to bear against corporate fraud wherever they occur.
I want to commend Task Force Member U.S. Attorney Jim Comey for his and his team's outstanding work on this case. I also want to thank Ken Newman of the U.S. Postal Inspection Service for their diligent efforts on this investigation.
As chairman of the Corporate Fraud Task Force, I'm also pleased to announce this morning the attorney general's designation of the chief of the U.S. Postal Inspection Service as a member of the task force. The Postal Inspection Service will bring a wealth of experience, expertise and resources to our fight against corporate corruption.
These charges are also the product of a close cooperation between Mr. Comey's office and Tom Moreno (ph), the U.S. attorney for the Middle District of Pennsylvania. Their coordination is a good example of the cooperative effort against corporate crime that the task force is encouraging.
Now, Mr. Cutler will also make an announcement, and after which we will be available for some questions.
STEVE CUTLER, DIRECTOR OF ENFORCEMENT, SEC: Good morning. Earlier today, the Securities and Exchange Commission filed charges against Adelphia Communications and six of its executives for having perpetrated an egregious multifaceted fraud on the company's investors.
This action is a prime example of the benefits of cooperation between the SEC and criminal law enforcement authorities. Through a joint investigation, the SEC working closely with the Department of Justice and the United States Postal Inspector was able to bring these charges in just over three and a half months. This case presents a deeply troubling and all too familiar picture of greed and deception at a large public company. It is a case about betrayal. The betrayal of shareholders by executives who put their own interests and their own pocketbooks first.
The financial fraud at Adelphia was orchestrated by the family of John J. Regis, who founded the company in 1952 and took it public in 1986. Mr. Regis and his sons, Timothy, Michael and James, with the assistance of two senior officers, James Brown (ph) and Michael Mullcahey (ph), oversaw a massive effort to disguise and distort the company's financial picture and to engage in rampant self-dealing that enriched the Regises at the expense of the shareholders they were supposed to be serving.
From at least 1998 through 2001, Adelphia, through the defendants charged today, fraudulently understated its liabilities by approximately $2.3 billion. Adelphia overstated its financial performance, including its earnings; exaggerated its operational performance, including total number of cable subscribers and the percentages of its plant that was upgraded; and concealed the rampant self-dealing by the Regis family, including the expenditure of more than $12 million of Adelphia funds to build a golf course on Regis- owned land; and the expenditure of more than $242 million in Adelphia funds to pay the Regises' personal margin calls.
Even after Adelphia's March 27 disclosure that it had kept more than $2 billion in debt off of its balance sheet, and after Adelphia was aware of the commission's investigation, the defendants continued their fraud. In press releases approved by John Regis, Timothy Regis, Michael Regis and James Regis, Adelphia misrepresented the scope and effect of the impact of the off-balance-sheet loans. And in a shocking instance of the Regises' misuse of Adelphia funds, the defendants caused Adelphia to pay approximately $174 million of the Regises' margin calls after March 27 of this year.
The relief the commission is seeking in this action is substantial. First, the commission seeks an order that the defendants account for and disgorge all ill-gotten gains plus prejudgment interest. This includes all compensation received during the period of the fraud, all property unlawfully taken from Adelphia through undisclosed related-party transactions, and all severance payments related to their resignations from the company.
We are seeking this disgorgement because we want to be clear that officers and directors of public companies who loot those companies for their own fortunes should not and will not profit from their behavior.
Second, because their egregious misconduct demonstrates their substantial unfitness to act as officers and directors of any public company, the commission seeks an officer and director bar against each of the individual defendants, as well as an order permanently enjoining all of the defendants from violating the federal securities laws.
Third, the commission seeks civil penalties against all of the defendants, including Adelphia. While it is often a difficult decision whether to seek a civil penalty from a corporation in a financial fraud case, because the effect of such a penalty is typically felt by the shareholders that have already been victimized, we think a penalty is merited here, given not only the scope of the wrongdoing, but also Adelphia's lack of cooperation during the commission's investigation.
This case exemplifies the commission's and the federal government's determination to react quickly...
KAGAN; We've been listening to officials from the SEC, also from the Justice Department, Deputy Attorney General Larry Thompson, as they discuss what is taking place, mainly against the Regas family. John Regas being the founder of Adelphia Communications. Some shocking allegations, basically saying that this family, according to the Justice Department, looted hundreds of millions of dollars from the company and caused investor to lose as much as $60 billion, and used assets from Adelphia for their own personal gain and enjoyment.
Arrested have been John Regas the founder, and also two of his sons Tim and Michael Regas, and two other executives from the company. All will be before a federal judge in Manhattan later today. And it goes on. All right.
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