Enraged that four of Adelphia Communications’ six-strong board of directors are appointees of the group’s founding Rigas family – whose alleged pillaging of Adelphia’s assets plunged the company into Chapter 11 bankruptcy protection – a committee representing shareholders has launched a lawsuit to compel the election of new directors.
The suit, filed with the US Bankruptcy Court for the Southern District of New York, alleges that not only were the original quartet appointed by the [then] ruling Rigas clan, the remaining duo – veteran cable executives, William Schleyer and Ronald Cooper, now Adelphia’s chief executive and chief operating officers – were hired by the Rigas-elected foursome.
Attorney Norman Kinel, acting for the shareholders’ committee, claims the present board is “tainted” by its links to family members who have been charged with fraud and fiduciary misconduct. “A fresh start and a clean slate is what's necessary,” he insists. Because of the alleged “massive fraud”, family members “have lost their rights to vote their shares”.
A particular source of anger are the proposed ‘success’ bonuses, which could be as high as $33 million for Schleyer and $22 million for Cooper, depending on the company's value when it emerges from Chapter 11. In a letter to the Wall Street Journal last month, Kinel’s firm described these as “unconscionable”.
However, shareholders are not the only victims of the alleged frauds. Unsecured creditors also have hopes of seeing some of their money back.
On behalf of the creditors, attorney David Friedman defended Adelphia's board, claiming it had “done cartwheels” to disassociate itself from the Rigas family, citing as an example a lawsuit filed in July seeking triple damages against the family for “massive self dealing”, waste of corporate assets and other abuses.
The equity committee was trying to obstruct the bankruptcy process, accused Friedman, because if a reorganization proceeds smoothly stockholders would recover little or nothing. “These actions represent a desperate attempt to derail a fair and open restructuring,” he charged.
Data sourced from: The Wall Street Journal Online; additional content by WARC staff