Fraud Essay

Adelphia Communications: A Family’s Power

It started as a striving business dedicated to providing cable service to the public. What became of Adelphia Communications would be just another example of the vicious act known as fraud. Fraud is the intentional act of misleading others about financial information for profit, personal gain, or other dishonest advantage. As the new millennium dawned 14 years ago, we saw an unraveling of numerous fraudulent activities by organizations large and small. One of these organizations that became perpetrators of fraud was Adelphia Communications. During its existence, Adelphia Communications quickly became one of the largest cable companies in the U.S. Adelphia was unique and differed from several other successful corporations at the time, for one special reason: it was family generated. In fact, it became a quintessential example of how a family owned business can grow into a successful publicly traded business. However, the firm family which gave Adelphia Communications its tremendous success, quickly became the cause for its torrential downfall.

John and his brother Gus Rigas founded Adelphia Communications in 1972 through the purchase of their first cable company Adelphia Cablevision Inc. in 1952 for $300. In Greek terms, “Adelphia” means brothers; clearly, John and Gus had long-term visions of their company being a family generated organization. Being the founders, the brothers seemed convinced to conduct the business how they wished, no matter what changes were brought to the organization in the future. Adelphia Communications was head quartered in Coudersport, Pennsylvania. It conducted business through the cable television industry with a focus on reaching areas where non-cable reception was weak. For this reason, Adelphia directed its attention to mid-size markets and suburban areas. In the late 80’s the Rigases would purchase several cable companies like: Clear Cablevision Inc., Indiana Cablevision Inc., Western Reserve Cablevision Inc., and International Cablevision Inc. When Adelphia Communications went public in August of 1986, these companies would be consolidated along with Adelphia Cablevision Inc. into the main company. These purchases made Adelphia’s profitability decrease. On the upside however, their revenue abilities shot through the roof. The new Adelphia Communications would begin business gaining around $30 million in annual sales, and proved to be a force to be reckon with in the cable-television industry.

When the 90’s came around, Adelphia Communications was easily a household name. It had increased its first year’s sales from $30 million to roughly $130 million in 1988, expanded to over 30 states, and achieved the status of the tenth biggest cable-television company in the U.S. More interesting, Adelphia had made a tremendous cash flow especially compared to other cable-television providers. In fact, Adelphia had the highest cable industry operating margin at 57% of revenues; the industry average was 35%. It wasn’t just Adelphia’s operating margin that contributed to its success, however. They really knew how to conduct business. For example, the company’s cable systems were one-of-a-kind. One analyst even reported Adelphia’s package as having the best channel capacities and addressability in the industry. Adelphia was truly deserving of the positive criticism. They had dedicated a five year project in 1990 to create cables that went 2,000 miles, double the number of stations they had, give better television visuals, and decrease the chances of interruptions. Another thing Adelphia did well was target the most beneficial consumers. Ever since its creation, Adelphia had targeted mid-sized, suburbs; which in inevitably, were boosting both in income and size over the decades. For instance, most of the areas Adelphia had operations in were regions where household growth rates were well above the national average. Acquisitions of small companies were

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