Adelphia Filing Details Intricate Financial Web

Updated from 7:44 PM EDT

Adelphia Communications (ADLAE) disclosed startling details Friday on the intricate relationships between the cable operator and the family that controlled it up until this week.

The company, commandeered until earlier this week by the extended family of John J. Rigas of Coudersport, Pa., revealed the information in a filing with the Securities and Exchange Commission on Friday evening, after Wall Street had cleared out for the long Memorial Day weekend.

If accurate, the arrangements paint a baffling picture of a family that treated the company as a very large piggybank, and a board of directors uninformed about crucial parts of related party transactions, or completely unaware of such transactions.

The complexity of some of the arrangements, the amounts of money involved and the number of different related-party transactions alluded to in the report suggest that the cleanup of Adelphia will be complicated.

Adelphia's shares closed at $2.77 Friday. The stock, down more than 80% since early March, imploded after the company surprised investors with the news that it was potentially liable, as of Dec. 31, for $2.3 billion in borrowings made by the Rigases.

Earlier this week, as the company announced that the Rigases were stepping down from Adelphia's board, resigning their executive positions and giving up voting control of the firm, Adelphia said that such potential liabilities had in fact grown to $3.1 billion as of the end of April.

Friday's SEC filing, summarizing preliminary findings of a special committee of Adelphia's board, including Chairman and acting CEO Erland "Erkie" Kailbourne, contains numerous allegations of questionable relationships between Adelphia and the Rigas family, including that:

Adelphia operated a cash management system -- the structure and operation of which weren't approved by Adelphia's board -- in which company subsidiaries and Rigas-owned businesses commingled funds.

When the Rigas family agreed, over the course of several transactions negotiated in 2001, to buy a total of $1 billion in Adelphia securities, the price for those securities was set by Rigas-family board members -- rather than independent board members -- in negotiations with Adelphia's underwriters.

For 2001, Adelphia charged cable systems owned by the Rigas family $7.8 million in management fees and other expenses; the board's special committee is investigating whether this money was actually paid to Adelphia.

In 2001, Adelphia paid $14.9 million to various Rigas-owned entities for such goods and services as furniture, interior design, office rent, snow removal and lawn care.

As of Dec. 31, Adelphia had $3.8 million in loans outstanding to film production companies owned or co-owned by John Rigas and his daughter Ellen Rigas Venetis.

Since 1998, Venetis and her husband, former Adelphia board member Peter Venetis, have had rent-free use of two Adelphia-owned apartments in New York City.

Adelphia has spent $13 million to develop a golf club and golf course near Coudersport. Eighty percent of that development is on land owned by the Rigases, but Adelphia doesn't have any lease agreements with the Rigases. No transaction with the Rigases was presented to the board or its independent directors.

In February 2000, Adelphia paid an unaffiliated third party $26.5 million for timber rights, lasting 20 years, on 3,656 acres in Pennsylvania. At roughly the same time, the Rigases bought the underlying land from that same third party for less than a half-million dollars. The timber rights agreement provides that if the Rigases lose their majority ownership stake in Adelphia during those 20 years, the timber rights revert to the landowners -- that is, the Rigases.

Adelphia's special committee says it's investigating whether it paid fair value for the timber rights, and whether Adelphia bought the underlying land on behalf of the Rigases. It's unclear what part, if any, of these transactions was presented to the board or its independent directors.

The special committee is also investigating the relationships between Adelphia and a car dealership part-owned by John Rigas that sold it 50 vehicles in 2001. And it's investigating whether Adelphia helped construct, acquire or maintain condominiums the Rigases used in Beaver Creek, Colo., and Cancun, Mexico.

In addition to these preliminary findings, Adelphia's Friday night 8-K contains previously undisclosed information about the agreement reached Thursday in which the Rigas family ceded control of the company and transferred more than $1 billion in assets to the company.

As part of that agreement, the Rigases are transferring the land in the above-mentioned timber deal to the company in exchange for a half-million reduction in the Rigas family's $3.1 billion in Adelphia-backstopped debt.

In addition, Adelphia's severance agreement with ex-chairman, founder and patriarch John Rigas -- including $4.2 million cash and lifetime health care coverage for him and his wife, Doris -- will terminate if John Rigas is convicted of a felony.

Neither Adelphia nor the Rigases could be reached Friday night.

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