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Essay on Adelphia the Rigas scandal
Family businesses all is however false off-balance-sheet transactions as a way for founders to deal out business assets or cash flow to the next age group. Time and again family stockholders pledge their illiquid shares as guarantee for loans in order to present liquidity to shareholders or to fund a venture outside the family business. As the bank is lending the money directly to the shareholders, such loans are off the company’s books, just as the contract between the bank and the company is not part of any formal financial records. At Adelphia, the Rigas family used company loan guarantees to purchase potentially cost-effective however perilous cable companies—not for Adelphia (where they owned only 40% of the stock) but for themselves.
The Rigases in addition used private loans backed by their Adelphia shares to purchase back Adelphia’s shares—most probable to combine their control of the company. The approach backfired badly. When the significance of Adelphia’s shares dropped, the Rigases didn’t have to pledge shares or offer additional safeguards for the reason that Adelphia had done that for them. Adelphia’s non-family shareholders were irritated, and correctly so. In addition to loss of shareholder confidence can be the initial step toward sale of a company.( Donohue, Steve (2004)
Former Adelphia Communications Corp. operations chief Michael Rigas, whose father and brother were sentenced to secure unit for an bookkeeping scandal that drove the company into economic failure, pleaded responsible to falsifying records. Rigas, 51, averted a retrial on 15 securities scam charges by pleading guilty to a slighter count. He faces up to three years in prison. He admitted he wrongly stated he made a ''rational examination" to bear out that family members had supplied funds to buy company stock in 1999. Prosecutors said Adelphia, the number five US cable-television operative, paid $1.75 million, not the Rigases....
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