The Rigas family has agreed to give up 95 percent of its assets -- or more than $1.5 billion -- to settle the government's case against John and Timothy Rigas and Adelphia Communications Corp., the cable company they managed and defrauded.
Federal officials, who announced the agreement Monday, said it was the largest asset forfeiture in any corporate fraud case in history.
And it marked yet another stumble in the fall of John J. Rigas, 80, the one-time Buffalo Sabres owner and cable pioneer who once vowed to open an Adelphia "co-headquarters" on Buffalo's waterfront.
Rigas and his son Timothy, 48, were convicted on fraud charges in U.S. District Court in Manhattan last July. Their sentencing had been delayed several times while lawyers negotiated the civil and criminal settlement announced Monday, and the sentencing is now expected to go forward on June 1.
"When these defendants were convicted in this case, it was a day of justice for corrupt corporate executives," Attorney General Alberto Gonzales said.
The settlement includes a $720 million compensation fund to aid investors who lost money because of the frauds committed while the Rigases ran the company. That's the second-largest amount ever paid to settle such a case, after the $750 million WorldCom paid in 2003.
But it was the $1.5 billion that the Rigases gave up that stunned observers.
"I can't remember a forfeiture one-tenth that size," said Stephanos Bibas, an associate professor of law at the University of Iowa who previously served as a prosecutor in the U.S. attorney's office in New York that got the Rigases convicted.
Under the deal, the Rigas family including members who did not face criminal charges will forfeit more than $1.5 billion in assets to the U.S. government.
Those assets include privately owned cable systems worth between $700 million and $900 million, all Adelphia stock and other securities owned by the family and several parcels of real estate valued at about $10 million.
Once those assets are forfeited, the government will turn over the Rigas cable companies to Adelphia, which has been managing them for years. In return, Adelphia will contribute $715 million in cash and stock to the "Adelphia Victim Fund," which the Department of Justice and Securities and Exchange Commission will run. The Rigases will provide the other $5 million.
The agreement will help resolve "one of the most complicated and egregious financial frauds committed at a public company," said Mark. K. Schonfeld, director of the SEC's Northeast Regional Office.
"The settlement provides an expedient and effective way to provide victims of Adelphia's fraud with a substantial recovery while at the same time enabling Adelphia to emerge from Chapter 11 bankruptcy," Schonfeld said.
As part of the deal, the federal government agreed to not prosecute Adelphia.
However, a Justice Department spokesman said the government planned to proceed with a second trial of Michael Rigas, John's son and Timothy's brother, whose case ended in a mistrial last July. After a four-month trial, a jury found John and Timothy Rigas guilty of 18 of the 23 charges they faced, meaning they could face decades in prison.
The Rigases' fall began on March 27, 2002, when Adelphia told investors that Rigas family companies had borrowed billions under co-signed loans that Adelphia might have to pay back. Investors quickly dumped Adelphia stock, and investigators descended on Coudersport, the tiny Pennsylvania town that Adelphia called home.
By June of that year, Adelphia was in bankruptcy. And a month later, Rigas and sons Timothy and Michael were in handcuffs, charged with looting Adelphia of $100 million, hiding $2.3 billion in debt and lying about the company's earnings.
Asked to comment on the settlement, the Rigases' bankruptcy lawyer, Lawrence McMichael, said the Rigases continue to believe they did nothing wrong. However, McMichael said the family was pleased with the settlement.
"They're very happy to participate in the creation of the victims' fund," he said.
Asked how the agreement will affect the family, McMichael said: "Time will tell. The Rigases will still have some assets remaining."
Adelphia which is now headquartered in Colorado and is in the process of being sold to Time Warner and Comcast -- called the settlement "a major milestone" in the company's emergence from bankruptcy.
"This is the best possible outcome, given the circumstances," said Bill Schleyer, Adelphia's chairman and chief executive officer.
The deal still must be approved by the U.S. Bankruptcy Court and U.S. District Judge Leonard B. Sand, who presided over the trial.