Adelphia Communications announced [1] it has filed a lawsuit against Deloitte & Touche (D&T). Basically, the suit claims D&T knew about “self-dealing and looting” by corporate officers, but failed to disclose it to the company's audit committee or suggest changes in the company’s corporate control practices.

Mr. Rigas, the company's founder and former chairman, along with his sons Timothy and Michael, were indicted in September on charges of securities fraud, bank fraud and conspiracy. Adelphia charges that, "the Rigas family never could have accomplished their wrongful acts had Deloitte fulfilled its professional responsibilities to Adelphia by disclosing the corporate abuses that it knew - and should have known - were taking place." The Rigases have all resigned their management and board seats, while denying any wrongdoing.

The lawsuit also notes that Deloitte performed its audits and certified Adelphia's financial statements without ever qualifying its audit reports, and always rendered a favorable opinion on Adelphia's ability to continue as a going concern. The company finds fault with these actions because Adelphia was forced to seek Chapter 11 bankruptcy protection last June.

The company is under regulatory and criminal investigations by the Securities and Exchange Commission and the Department of Justice for hiding its business relationships between Adelphia and entities tied to the Rigases and for inflating its financial results.

Through its lawsuit, Adelphia seeks to recover from Deloitte compensation for all injury suffered as well as punitive damages.

Deloitte's statement

Deloitte issued the following statement.

Deloitte & Touche has not seen the lawsuit in question, so the firm is not in a position to comment. However, Deloitte suspended its audit of Adelphia in May and at that time informed both the company and its audit committee that a long series of open items had to be investigated and satisfactorily resolved before we would be in a position to issue a report on the financial statements.

At that time we advised the chairman of the audit committee that we believed that certain of the matters included in the list of open items represent possible illegal acts that could be material to the company's financial statements. Deloitte requested that the company's audit committee conduct an independent investigation of those issues, and informed the company that we would not be in a position to issue our report until the issues were resolved.

Although there was a special committee of the company conducting the investigation, they refused to share material information with us about the investigation, while at the same time urging us to resume our audit.

Since that time, Rigas family members and other employees have been indicted and an SEC Complaint issued against the company and those same individuals. The US Attorney and the SEC actions raise many of the same issues raised by Deloitte when it suspended its audit. The board, including its independent directors, knew and approved of many of the acts complained of. To the extent that there was fraud by people at the company, the purpose was to deceive Deloitte as well as the public.

While any action Deloitte might bring against the Company is currently stayed by Adelphia's bankruptcy filing, at the appropriate time, Deloitte will seek remedies against the company and former and/or current Adelphia officers and directors who supplied Deloitte with erroneous and incomplete information.