Adelphia Goes Into Bankruptcy as Deloitte's Role is Questioned
Cable television giant, Adelphia Communications, has filed for Chapter 11 bankruptcy protection while the company tries to regroup after revelations about financial abuses by the company's founding Rigas family. Meanwhile, some of the finger-pointing goes to Big Four firm Deloitte & Touche, the company's auditor that signed off on financial statements that didn't disclose off-balance sheet loans of more than $4.5 billion to the Rigas family.
Deloitte has since rescinded its position on the company financials, indicating it has withdrawn certification of Adelphia statements dating back to March 2001.
A company investigation has shown that John J. Rigas, company founder, and his family borrowed $4.5 billion which was used to buy timberland and New York condominiums, to help pay for the Buffalo Sabers pro hockey team, to bankroll movies to be produced by a Rigas daughter, to purchase automobiles on behalf of a Rigas-owned dealership, to build a golf course on family-owned property, and to purchase company stock. The stock, which was trading at over $20 per share when at least $700 million in corporate funds was used to purchase shares for the founding family, is now trading at $.12 per share. None of the family's financial transactions, including borrowing company funds to purchase stock, were disclosed in financial statements.
It is expected that Deloitte will argue that the firm urged the Rigas family to disclose some of its transactions to the Adelphia audit committee when the transactions came to light in February of 2002. Deloitte gave a letter to the audit committee at that time indicating its discovery that the firm employed "executives who might have been involved in inappropriate conduct related to the company's financial reporting." Deloitte has claimed that independent board members wouldn't turn over documents that the accounting firm needed to complete its audit. Board members have claimed that they weren't informed by Deloitte about transactions involving the Rigas family. Deloitte has claimed it was not privy to such transactions, however Deloitte is the auditor for several ventures jointly owned by Adelphia and the Rigas family.
Adelphia fired Deloitte & Touche earlier in June and has since hired PricewaterhouseCoopers as its independent auditor. Deloitte is required to file a statement with the Securities & Exchange Commission by June 28 in response to its dismissal. It is expected that the firm will claim that Adelphia's board interfered with Deloitte's ability to conduct its audit.