Lying, Cheating and Stealing Lying, Cheating and Stealing

White collar crime is not a victimless crime. People’s lives can be ruined through the loss of a job, loss of savings and loss of assets. It is hard to not hear about white collar crime when looking at news. While not a justification for illegal actions, pressure is very high for companies to perform well and show growth. This pressure can lead people to commit crimes to falsify results or to enrich themselves. Laws and regulation, such as Sarbanes-Oxley have been implemented to provide greater transparency and accountability. However, the crime has become more sophisticated and complex. Many examples of such crimes involve greed and feelings of entitlement. One such example is Adelphia Communications and the Riga family.
In the late 1990s, Adelphia Communications was a major cable operator with over 5 million subscribers. In 2002, the SEC pressed charges against the founders (Rigas family) and accused founder John Rigas of taking $2.3 billion from the company to buy stock and invest in a golf course. Also alleged was for years Rigas and his two sons falsified Adelphia’s earning, costing investors more than $60 billion.
John Rigas formed Adelphia Communications in 1952, when he bought a cable franchise in a small town in Pennsylvania. While Adelphia purchased cable systems, the Rigas family acquired their own small cable companies (outside of Adelphia). They did this to diversify their holdings in the event of problems at Adelphia.
Rigas filed a number of false statements with the Securities and Exchange Commission (SEC) in which he falsified Adelphia’s subscriber growth and bottom line. Rigas also took out a $2.3 billion loan from company, which he carefully hid from auditors. Rigas used the funds to buy Adelphia stock and luxury homes; he also invested in a $13 million golf course. This is a massive example of downright fraud. This seems unbelievable at such a large corporation. How can one person have so much power, especially at a public company?
In 2001, the SEC audited the company's financial statements and found that enormous loan to John Rigas. When investors found out about the massive loan, the price of Adelphia stock sank from its high of $68 in 1999 to just 25 cents a share. Investors were crushed. Adelphia was forced to declare bankruptcy. Rigas and his sons were indicted for one of the worst financial frauds committed at a public company in history.
During the trial, the defense claimed that Rigas had only borrowed the money and the fact that he never sold stock was evidence of his ‘honest intentions.’ Rigas' attorney claimed the entire case was built on a scheme by Adelphia employees to blame the company's problems on the family. The Rigas’ seemed to treat the business like a personal bank account and acting entitled to the assets. This behavior seems fairly consistent with white collar crime; feeling and acting entitled.
Prosecutors presented hundreds of documents to prove that Rigas and his son issued themselves $1.6 billion in stock. The men also charged $100 million in personal items to the company; John Rigas paid for 17 cars with company funds and was accused of taking a million dollars every month.
In 2005, they returned more than $1.5 billion in assets to Adelphia. In turn, the failing company set up a $715 million fund for the investors who lost out in the scam. That same year, Time Warner Corp. and Comcast Corp. made a joint purchase of Adelphia for $17.6 billion.
John Rigas was sentenced to 15 years in prison in 2005. His son Timothy, former CFO of Adelphia, got 17 years. Another son, Michael, only got 10 months under house arrest. In 2008, John and Timothy Rigas were back in appeals court, where one of their 23 fraud sentences was thrown out. Their lawyer argued that their prison terms were unfair. Rigas, 86, had his sentence dropped to 12 years.
I find it very interesting that white collar criminal punishment, many incidents involve vast sums of money, seem to get small punishment. Mr. Rigas only was sentenced to 12 years in prison. However, I do think that laws, and the application of those laws, should always be consistent. If someone is unhappy about a law then they should try to change the law. It is possible that if laws and punishment was more severe perhaps less white collar crime would be committed.
I think the punishment in the Rigas case was fair. While it may seem light, the law was followed. The Rigas family no longer owns Adelphia and they are serving time in prison. At Mr. Rigas’ age it could very well be a life sentence. One ethical issue that comes to mind is the money John Rigas took from the company to support a lavish lifestyle. All the while he was concealing a huge amount of debt. This fraud cost investors a great deal of money when the share price completely collapsed (from $67 to 15 cents). While the crime is not violent, it caused a great deal of harm to people that lost the money involved.
I feel that punishment for white collar crime will be made stronger in the future. Greater oversight and accountability will hopefully lead to less drastic and major incidents like Adelphia, Enron and Madoff. However, there will always be crooks. The temptation for easy money is too great. It is always wise to diversify investments to avoid a mass loss.