The Enronand WorldComscandals set the bar for white collar crime pretty high. By comparison, other corporate misdeeds seem like small potatoes. Corporate criminals everywhere are crying out, "What does it take to get a little attention around here?"
Looting Tycoof hundreds of millions of dollars did the trick for former CEO Dennis Kozlowski and ex-CFO Mark Swartz. Or maybe it was the little things: a $2 million toga party for Kozlowski's wife, evasion of $1 million in sales tax, or a $30 million pied-à-terre in the city, whatever that is.
I'm sure investors were captivated by the $100 billion (that's billion, with a b) of Tyco's market cap that was wiped out in a matter of months.
It's hard to top newsmakers like that, but for my money, the Rigas family of Adelphia Communications pulled it off and then some.
Adelphia - which means "brothers" in Greek - used to be one of America's largest cable companies. John Rigas founded the company and served as CEO and chairman. John's number one son Tim was CFO, and Tim's brothers, Michael and James, were VPs. All four were board members, along with John?s son-in-law Peter Venetis. That gave the family five of the board's nine seats.
The Rigases also had 100% ownership of class B super-voting shares, which gave the family majority voting rights. That's how they maintained control of the board even after the company went public.
To say the board and voting configuration was dysfunctional is a gross understatement. That alone should have triggered big red flags for institutional investors. But nobody paid attention to red flags during the tech bubble.
The complete lack of independent oversight gave the family carte blanche to rob the company blind. They used company funds to buy back Adelphia stock and fund other family enterprises, including a golf course, vacation homes, apartments on the upper east side of Manhattan, corporate jets, a fleet of cars, production of a film by John's daughter, and even ownership of the Buffalo Sabres hockey team. Everything was off the books.
The fraudulent fraternal behavior might have continued indefinitely if not for one man. On an earnings conference call, Merrill Lynch analyst Oren Cohen wanted to know how the family could afford to buy back more than a billion dollars of the company's stock. Caught by surprise, CFO Tim couldn't come up with a decent response. In the post-Enron environment, that was all investigators needed to descend on the company.
Within two months, the Rigas clan had resigned their positions and relinquished control of the company. Adelphia officials estimated the company was liable for a staggering $3.1 billion in family debts. That was enough to force the company into bankruptcy.
IMHO, the Rigas family's misdeeds trump those of higher visibility cases. What galls me is the complete disregard for employee and shareholder welfare as they systematically looted a public company to fund frivolous and lavish lifestyles. John and Tim will likely pay for the rest of their lives, having been sentenced to 15 and 20 years, respectively. Last week a U.S. district judge ordered the pair to report to prison on August 13, putting an end to one of the biggest corporate scandals in our nation's history.
At sentencing in 2005, John said, "In my heart and in my conscience, I'll go to my grave really and truly believing that I did nothing but try to improve the conditions of my employees." The human capacity for self-denial is truly impressive.