Fraud Case

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THE NATION’S NEWSPAPER

BS2003-01b

Collegiate Case Study
Adelphia founder, 2 sons, 2 others arrested in fraud
By David Lieberman and Greg Farrell

www.usatodaycollege.com

Accounting fraud
Part II: The results
“Creative accounting” is not a new technique, but it can certainly be a costly one. Businesses feel the pressure to appear profitable in order to attract investors and resources, but deceptive or fraudulent accounting practices often lead to drastic consequences. Are these so-called creative practices always illegal or can they ever be justified? This case study will present examples of companies who have used inappropriate accounting practices, the results of their deceptions and the government's plan to avoid future incidents.

WorldCom scandal brings subpoenas, condmnation
By Andrew Backover and Thor Vladmanis

Andersen’s partners chart firm’s future today
By Greg Farrell

Client-starved Arthur Andersen cuts 7,000 jobs
By Greg Farrell

Dominoes hit WorldCom partners, clients
By Michelle Kessler

Adelphia plans to file Chapter 11
Cable firm expected to seek bankruptcy protection today
NEW YORK -- The waiting should be over today. Adelphia Communications plans to file for bankruptcy protection, nearly three months after the onceproud No. 6 cable operator first disclosed dealings with the family of founder John Rigas that turned it into a symbol of corporate scandal. The company is expected to announce that it has raised as much as $1.5 billion from banks led by J.P. Morgan Chase and Citigroup to keep operating while a bankruptcy judge decides how creditors will be paid. A Chapter 11 filing — the biggest in cable history — could help efforts to find a buyer for some, or all, of Adelphia's systems, which serve 5.7 million subscribers. The court can protect an acquirer from unexpected liabilities, including those stemming from several shareholder lawsuits and investigations into Adelphia's finances by two grand juries and the Securities and Exchange Commission. The company could pay off its estimated $19 billion in debt if it can sell systems for $3,500 per subscriber, roughly the industr y norm. But stockholders could lose their entire investments. Adelphia shares closed Friday at 15 cents in over-the-counter trading.

Case Study Expert: John D. Martin, Ph.D.
Professor of Finance, Baylor University

USA TODAY Snapshots®
Politicians role in monitoring business
Opinion leaders1 say government should be more involved in oversight and regulation of private enterprise2:

52%

45%

Agree

Disagree

Source: Edelman Public Relations Worldwide/ StrategyOne Research survey of 400 respondents.

1 – College educated 35- to 64-year-olds with household incomes of more than $100,000 2 – Does not add up to 100% due to rounding

By Darryl Haralson Marcy E. E. Mullins, USA TODAY By Darryl Haralson andand Marcy Mullins, USA TODAY

Reprinted with permission. All rights reser ved.

AS SEEN IN USA TODAY MONEY SECTION, MONDAY, JUNE 24, 2002

And a sale may devastate Coudersport, Pa., where Adelphia is headquartered. It's by far the largest employer in the rural, mountain town of 3,000. Meanwhile, Adelphia will tr y to reassure its subscribers. "Adelphia is committed to reversing its admittedly difficult present financial situation," it wrote last week to 3,500 franchise officials. "Most importantly, there should be no change in service to Adelphia customers as a result of these developments." Adelphia's downfall began on March 27, when it disclosed that a Rigas family partnership had borrowed $2.3

billion using company assets as collateral. The amount has since been raised to $3.1 billion. That stunned analysts, who believed that the operator was already too deeply in debt. Barraged with questions, Adelphia put off release of its 2001 annual report. More questions were raised when it was confirmed that the SEC was investigating. As the stock plummeted, Nasdaq weighed delisting...
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