The Adelphia Communications Scandal
Adelphia was founded in 1952 when John Rigas made his first move of purchasing a cable company for $300 in Coudersport, PA. This cable television was steadily expanded into other communities, through the help of John’ s brother Gus and his two sons. In 1986, the company was taken public with the name Adelphia Communications Corporation. The founder John Rigas was known to be an aggressive man, not scared of taking risks when he really expected a big return. This is why the Adelphia Communications Corporation became the sixth largest cable operator, featuring 5.3 million subscribers. Unfortunately, the thirst for success led to a drastic change in John’s moral and ethical values, as he started manipulating financial records. Due to the public presence it offered, the act of manipulating and concealing financial information that were critical to the public and stakeholders soon became part of the company’s corporate culture. Before long, billions of company funds were missing, and there was no way to further conceal the situation.
The Adelphia Communications scandal took place in 2002 when a footnote obtained from the routine quarterly earnings statement revealed that over $2 billion had been borrowed by the Rigas family (Markon & Frank, 2002). This amount was not repaid, and this is what led to the creation of financial fraud suspicion. The amount of cash involved was huge ,and a peculiar arrangement with Adelphia that stated the company and family are responsible for either one’s debts further proved that there was an issue with finances. Eventually, it came to light that the father and son responsible for the company were thieves and fraudsters who routinely knew exactly how to make up numbers when they need to present them to stakeholders. This gave them an opportunity to lure more stakeholders, borrow cash from the company frequently and never pay back a cent (Markon & Frank, 2002). Eventually, the federal court jury convicted the father and son of fraud and conspiracy.
Two Key Ethical Problems Raised by the Adelphia Communications Scandal
This scandal raised two key ethical problems. The first featured the earnings and liabilities misinterpretation. The Adelphia communications company went ahead to inflate earnings so it would meet the expectations set by Wall Street (Markon & Frank, 2002). For instance, the leaders of the company regularly misstated its press releases and Security Exchange Commission filings (Barlaup, Hanne & Stuart, 2009). Specific performance aspects were also manipulated to make it appear among the top cable companies. For instance, the total number of basic cable subscribers was increased, the extent of cable plant upgrade was exaggerated, and its corporate earnings were also played with to improve its image.
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The second ethical problem arising from the scandal featured the personal loans being given to the Rigas family from the Adelphia Corporation. Ever since 1998, the Adelphia Communications company leaders have been using fraudulent misrepresentations and omissions to help cover up for their rampant abuse of company funds. This family frequently used company funds to pay for the vacation properties, apartments, and even to develop a golf course on a piece of land majorly owned by the Rigas family (Barlaup, Hanne & Stuart, 2009). Additionally, records show that this company has already issued over $ 772 million and $ 563 million of common stock and corporate notes respectively, to the family’s benefit (Markon & Frank, 2002). Some member of this family have already managed to secretly divert approximately $ 174 million of company funds to help pay their personal margin loans (Markon & Frank, 2002).