ADELPHIA COULD FACE CIVIL PROSECUTION FOR SEC VIOLATIONS
SEC opened formal investigation against Adelphia, company said Wed. in brief statement. Until now, inquiry by SEC staff had been informal. Formal decision by SEC to move into new phase of investigation gives agency power to subpoena company documents and compel executives, including members of founding Rigas family, to testify during depositions. Adelphia twice has missed deadline to file its annual 10-K report to SEC (CD April 17 p2), saying it was working on its own review with auditors Deloitte & Touche. Questions center on Adelphia’s handling of $2.3 billion in off-balance sheet loans to entities controlled by Rigas family. Adelphia executives have called them “co-borrowing” agreements and said at least some of money was used by Rigases to buy company stock. However, company itself still would be responsible for loans should family default. Analysts have openly criticized family members, accusing them of concealing loans for personal gain. Stock has lost more than half its value since March 27, when loans became public. Adelphia and Rigases, meanwhile, have said little publicly, and stockholders filed class-action lawsuits.
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SEC declined to comment, but official familiar with inner workings of agency said transition to formal investigation meant preliminary work by agency staff during informal inquiry showed sufficient evidence that securities laws had been violated to bring matter to vote before full Commission. While formal investigation indicated laws might have been broken, it was by no means indictment and investigators still could find that company executives had done nothing wrong, official said. However, if this 2nd phase of investigation discovers illegalities, SEC could issue “Wells notice,” informing company that agency would begin enforcement proceeding against company for possible civil wrongdoing. SEC also could refer matter to another agency for criminal prosecution or work in concert with law enforcement agencies. In current phase, SEC can issue subpoenas, not only to Adelphia and its executives, but also to Adelphia contractors, vendors and anyone else who may have had dealings with company. SEC can take Adelphia phone records and e-mails and follow trail wherever investigation leads, with blanket subpoena authority. Official said investigations involving accounting matters could take year or more, depending on individual circumstances.
On Wall St., Nasdaq officially changed trading symbol of company to ADLAE from ADLAC, giving shareholders notice that Adelphia was delinquent in meeting requirements for trading on exchange. Nasdaq also can threaten company with delisting, although there was no immediate indication it would do so. Analyst Michael Goodman of Yankee Group said it wasn’t impossible for Adelphia to regain respect it once had on Wall St. but it would be “a long, hard road back” and at this point company could do little but attempt “damage control.” Nevertheless, Tony Accamando, Adelphia’s vp-public and community affairs and personal friend of Rigases, said family would bounce back from challenge “without question,” adding that CEO John Rigas was man of “unquestionable integrity.”