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Adelphia often deceived banks, witness testifies

By Christine Nuzum
Dow Jones Newswires

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Finance executives, including defendants Timothy Rigas and Michael Mulcahey, held Saturday meetings after the cable company's quarterly reports were filed with the Securities and Exchange Commission to decide how to manipulate the prior quarter's financial data for the bank lenders, Brown testified yesterday.

Rigas and Mulcahey are on trial on charges of fraud and conspiracy along with Rigas' brother, former Executive Vice President Michael Rigas, and their father, company founder John Rigas.

Mulcahey, formerly assistant treasurer, was responsible for the calculations for compliance and prepared the documents given each quarter to the banks, Brown said. Former Chief Financial Officer Timothy Rigas often signed these documents, he added.

Mulcahey wrote various notes that appeared to give directions for inflating the cash-flow measures presented to the banks, Brown said.

"We currently show we are out of compliance, need an additional $200,000 income," one internal document shown in court said.

"Please reduce man. fee by 1.5 million," a handwritten note on the document said. The handwriting was Mulcahey's, Brown testified.

By reducing management fees, Adelphia inflated its operating cash flow, one financial measure that the banks evaluated to determine compliance and to adjust the interest payments required, Brown testified.

Adelphia manipulated numbers given to the banks in some way "almost every quarter," Brown said.

The company kept two sets of books on financial data related to loan compliance, Brown said. One contained the information that was sent to the banks; the other had that data "and details about things that had been manipulated," he said.

"Tim Rigas said that we don't want to fool ourselves," Brown said. Tuesday, Brown testified Timothy Rigas said the same thing about Adelphia's internal documents that broke out real financial data and inflated financial data that was reported to the public.
 
Brown also testified that at a meeting in the "mid to late '90s" Timothy Rigas told his father not to take anything out of the cash-management system without checking with him first. John Rigas protested that his son was away from the office too often for such a plan to work, Brown said.

"He didn't want Mike Mulcahey or Jim Brown telling him how he could or couldn't spend his money," Brown said.

Tim Rigas relented and told his father that he could take any amount up to $1 million per month without checking with him first, Brown said.

Money drawn by the Rigases and Rigas-family entities from the cash-management system was booked as receivables, which grew to "several hundred million dollars," Brown testified.

Brown has pleaded guilty in the case and is cooperating with the government in hopes that any sentence against him will be reduced.