What's up guys and welcome back to wall street millennial on this channel, we've seen many corporate disasters many times the result of massive fraud among company officers, one of the most high profile such cases from recent history was a case of valiant pharmaceuticals. This company was nearly brought down by accounting scandals and their own predatory business practices that includes allegedly using a subsidiary pharmacy company to steer customers towards valiant's own high-priced drugs, while under the guise of being an independent pharmacy. Eventually, after jacking out prices of specialty and life-saving drugs by hundreds of percent, public sentiment eventually turned against the company and they settled charges with the sec and rebranded as bosch health. Considering the scale of the scandal, the company could be said to be lucky that it still exists at all.

That is not always how things turn out in this video we're going to take a look at a company whose executives were so shameless that it brought down. One of america's biggest cable companies we're talking about the multi-billion dollar corruption case behind adelphia communications adelphia communications corporation, was founded in the mid 20th century by john and gus riggos. They started their first several decades in business as a cable tv franchise, but eventually they expanded into providing commercial and business products for communication such as internet and phone services. By the 1990s, they were providing internet service to millions of customers across the country.

They became a publicly traded company by the turn of the century. Their stock reached a market cap of more than 5 billion dollars and they're. The sixth largest cable company in the country. The regis brothers, who were now in their 70s, had built up an american mega corporation after 50 long years of business.

Unfortunately, ceo john regas and family members involved at the company were hiding a billion dollar skeleton in the closet from 1998 through 2002. They systematically defrauded investors by hiding the true financial position of the company. In total they had 2.3 billion dollars of liabilities from shareholders, a significant portion of the value of the entire company. They did so using a sophisticated scheme to take out debt and issue equity.

On behalf of the company, but for the benefit of the family itself, the scheme involved an astonishing array of regis family members in high up positions within adelphia. This includes the founder, ceo cfo, the chief accounting officer, the treasurer and director and the executive vice president for strategic planning at the center of the scheme were a number of separate businesses owned by members of the regos family. These businesses were not part of adelphia and thus their financials were not consolidated into the financials of adelphia. Some of these businesses also operated cable tv services, but they did so with the help of adelphia without compensation.

What specifically enabled the fraud was, the adelphia cash management system or cms adelphia, as well as separate businesses used the cms for holding cash generated, doing business and borrowings taken out on behalf of the business. They also withdrew funds from the cms to pay for operating expenses. Capital expenditures and debt repayments. This system caused the commingling of funds across all the companies, including adelphia in the four years, spanning from 1999 through 2002 adelphia, take out billions of dollars of debt and issue billions of dollars worth of equity.

By 2002, they had 6.8 billion dollars of bank credit, debt, 6.9 billion dollars of senior note debt and 1.6 billion dollars of debt in the form of convertible preferred stock. They also undertook four separate public offerings of stock that raised 2.8 billion dollars during this time. The proceeds from these corporate actions largely went to the commingled cns with the cms. The regas family was able to take out debt and issue stock in the name of adelphia, but withdraw the proceeds by other parties.

It turns out that the family withdrew money from the cms to fund a lavish lifestyle. The scheme involved many executives from within the rigos family. The extent of the corruption in the high up ranks of the company was incredibly wide-ranging with everyone in on this game. The regas family was able to siphon off money from the cms without anyone blowing the whistle for a long period of time.

Also because there are so many people involved who each wanted to experience the high life, the amount of money that was withdrawn from the company funds was extraordinary. Hundreds of millions of dollars per year were taken out of the cms. The commingled nature of the cms allowed funds to be taken out without anyone immediately noticing, but eventually the discrepancy between the company's cash balance and other financials, such as interest expense, would become too glaring for wall street to overlook by march 2002. The company had no choice but to admit that there were 2.3 billion dollars of debt liabilities held by the company that were not reported in their sec filings.

This was a shocking realization for public shareholders. The 2.3 billion off-balance sheet liability could only mean that massive fraud was happening on that piece of news. The company's share price plummeted in the preceding several months. The company also made other admissions of fraudulent activities.

They disclosed that they had overstayed their earnings for years as well as lied about how many cable subscribers they had. For example, they reported some of the cable customers of the other unconsolidated companies participating in the cms as their own customers. They counted 15 000 customers in brazil who were not in fact adelphius customers, but instead were customers of one of the unconsolidated affiliate companies. In essence, they took all the credit from all the good parts of the cms companies while putting their own debts on the books of those companies.

They also lied to investors about the technical capabilities of the company's infrastructure. They overstayed the portion of their cable facilities that were able to transmit signals at high speeds, as well as the proportion of their facilities that provide two-way service, such as internet. All of these factors and more resulted in fraudulently high reporting of earnings for the company. The company's profits were being eroded by the regas family's spending, as well as big-ticket self-dealing transactions, for example.

In early 2000, adulthood purchased the rights to the timber on a 3 700 acre parcel of land for, and a half million dollars, allegedly, the land contained valuable hardwood cherry trees that could be harvested. It turns out that the regos family owned the land and had in fact purchased the land earlier for less than half a million dollars. Also adelphia funded the construction of a 13 million golf club on the regals's property, an expense that was never disclosed to shareholders. Adelphia funds were also used to buy luxury condos in new york and also to blatantly purchase stocks on behalf of rigos family members.

Additional hundreds of millions of dollars of personal loans of regas family members were paid off by adelphia, even after the fraud was admitted publicly by adelphia in march of 2002. Adelphia continued many of the fraudulent practices. For example, company funds were used to pay off 170 million dollars of margin loans that were held by regas family members after the company's admission of the original 2.3 billion dollars of off-balance sheet liabilities. But as more and more of the fraud was uncovered, the stock price plummeted, eventually falling under one dollar per share.

At this point, the stock was delisted in june of 2002., the regals has stepped down from their positions and the company filed for bankruptcy. The company had 20 billion dollars of debt and, after having a significant portion of its equity siphoned off by the regas family, there is no way it had any chance of being able to pay back those debts as a result of the charges. John redos and some of his family members stood trial. The judge said that the case was a tragedy without a hero and sentenced him to 15 years in prison at 80 years old.

This essentially meant a life sentence for him. His son timothy regas, was sentenced to 20 years in late 2015. John regas lawyers said that regas was terminally ill with cancer and had only one to six months left to live. A judge allowed him to be released from jail about four years early out of compassion.

However, he made something of a comeback from the cancer and, as of the recording of this video, john regas is still alive. His son timothy regas, was also released early in 2019 as a part of the first step act under this law federal inmates serving for non-violent crimes who have served two-thirds of their sentences and are above the age of 60, can be released early. A confusing detail of the story is that the regas did not engage in insider selling when the scandal began to unfold. This sets it apart from other major corporate frauds like enron and worldcon.

A possible reason for this is that john regas and his family did not plan for the company to fall into bankruptcy and genuinely thought that they could right the ship. Reportedly, when john regis was sentenced to 15 years in prison, he told the judge that deep down in his heart, he truly believed that he had only ever acted in the best interest of his employees. Perhaps he thought that the fraud would only have to happen for a short period of time until business picked up and the missing money and liabilities could be paid back still to say that he truly believes he did nothing wrong, while in reality the family had extracted. Hundreds of millions of dollars from the public company for personal enrichment seems questionable at best.

What do you think the regas family's true intentions with adelphia were: do you think a publicly traded company should be allowed to make undisclosed purchases for the benefit of its founders and executives? Let us know what you think in the comments section below. If you enjoyed this content, make sure to smash the like button and subscribe for future uploads in the meantime. Thank you. So much for watching and we'll see you in the next video wall street millennial signing out.