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U.S. v. RIGAS

April 21, 2003

UNITED STATES,
v.
JOHN J. RIGAS, TIMOTHY J. RIGAS, MICHAEL J. RIGAS, AND MICHAEL C. MULCAHEY, DEFENDANTS.



The opinion of the court was delivered by: Sand, United States District Judge

MEMORANDUM AND ORDER

Defendants John Rigas, Timothy Rigas, Michael Rigas, and Michael Mulcahey ("Defendants") are charged with conspiracy, securities fraud, bank fraud, and wire fraud in connection with the control and management of Adelphia Communications Corporation ("Adelphia"). Pursuant to Federal Rule of Criminal Procedure 7(f), John Rigas, Michael Rigas, and Michael Mulcahey now seek an order directing the government to provide bills of particulars responsive to their individual requests.*fn1 Pursuant to Federal Rule of Criminal Procedure 16(a)(1)(E)(i), Defendants also move the Court to compel disclosure of certain documents prepared by legal and accounting professionals who examined Defendants' conduct while employed by Adelphia's Special Committee of Independent Directors. For the reasons set forth below, the motions are denied.

COPIES MAILED TO ALL PARTIES

BACKGROUND

The 103-page, 214-paragraph indictment in this case ("Indictment") charges Defendants with one count of conspiracy and 23 counts of securities fraud, wire fraud, and bank fraud. Briefly summarized, the Indictment outlines the following facts. As of December 31, 2000, Adelphia was the sixth largest cable television provider in the United States and was controlled by members of the Rigas family. Organized as a holding company, Adelphia was the indirect owner of assets owned by its subsidianes. Separate, but connected with, Adelphia and its subsidiaries were certain Rigas Family Entities ("RFEs"), which were involved in cable television ("Cable RFEs") and other businesses ("Other RFEs"). The operating revenues and expenses of Adelphia, its subsidiaries, and the RFEs were organized through a centralized cash management system ("CMS").

Adelphia's capital structure became highly leveraged due to a series of acquisitions of other cable operators in 1999, which were funded through (1) secured loans from banks and (2) the sale of debt and equity securities to the public. Starting in 1996, Adelphia subsidiaries had also entered into co-borrowing agreements with Cable RFEs in which both participants were jointly and severally liable for debt incurred in connection with certain secured syndicated bank loans. The Indictment sets out a number of these co-borrowing credit facilities as well as the debt securities and preferred stock issued by Adelphia and its subsidiaries. During this period of leveraged acquisitions and co-borrowing, Defendants filed financial statements pursuant to SEC regulations and made additional material disclosures about its business and performance. The latter disclosures included quarterly press releases and conference calls in which Defendants discussed Adelphia' s earnings, growth, and number of cable and high-speed Internet subscribers.

The Indictment outlines Defendants' participation in an alleged scheme to defraud Adelphia shareholders and creditors between January 1999 and May 2002. Five aspects of the alleged scheme are the focus of the Indictment: (1) fraud in connection with Adelphia's liability under the co-borrowing agreements; (2) fraud in connection with Adelphia's efforts at deleveraging; (3) fraudulent reporting of Adelphia's operating results; (4) fraudulent efforts to avoid or misrepresent compliance with the terms of bank loans; and (5) fraud in connection with a series of self-dealing transactions between Adelphia and members of the Rigas family. The Indictment describes each aspect of the alleged scheme in some detail. Regarding Adelphia's liability under the co-borrowing agreements, for example, the Indictment alleges that Defendants caused Adelphia to file Form 10-K documents containing financial statements that concealed the outstanding joint and several liabilities under the co-borrowing agreements. Regarding the alleged self-dealing, the Indictment avers that Defendants caused Adelphia to enter into a series of transactions for the benefit of the Rigas family, including the satisfaction by Adelphia of margin calls on Rigas accounts through the use of unauthorized and undisclosed wire transfers from the CMS, the personal use of Adelphia's corporate aircraft, and the use of Adelphia funds to construct a golf course in Coudersport, Pennsylvania on land owned by John Rigas. As part of the conspiracy count, the Indictment outlines the means and methods used by Defendants and a series of overt acts, which list specific agreements and dates, committed in furtherance of the conspiracy. The securities fraud, wire fraud, and bank fraud counts specify the securities, wire transfers, and bank credit agreements at issue. In sum, the Indictment centers on an approximately three-year period in which Defendants allegedly engaged in a pattern of criminal conduct designed to conceal or minimize Adelphia's increasingly precarious financial condition and the Rigas family's improper use of Adelphia funds for personal purposes.

This case is scheduled for trial on January 5, 2004. On November 1, 2002, the government completed Rule 16 discovery of the information in its possession, which included thousands of documents along with indices identifying who produced the document and, in some cases, the subject matter of the document or group of documents identified. Nevertheless, both parties acknowledge that, due to the complexity of the case, their respective investigations are ongoing. (Tr. of Oral Mg. of 4/10/03 ("Tr.") 18-19.) The defense, therefore, continues to obtain material as it becomes available and as the government completes the process of gathering data and making decisions with respect to the streamlining of the case. (Tr. 30-31.) To ensure adequate time to prepare for trial, the government has agreed to the following discovery schedule: disclosure of proposed business records to be offered into evidence two-and-a-half months before trial; disclosure of the government's witness list, witness statements, impeachment material for the government's witnesses, and notice of Rule 404(b) evidence by November 24, 2003; and disclosure of the government's marked trial exhibits and expert notices by December 5, 2003, one month before trial. (Tr. 22; Gov't Mem. 11-12.)

All Defendants filed a joint motion ("Joint Motion") for a bill of particulars requesting that the government identify four general categories of information: (1) the alleged "sham" transactions and false entries in Adelphia's books and records, which reflected an effort to manipulate Adelphia's earnings before interest, taxes, depreciation, and amortization ("EBITDA"); (2) the particular oral and written misrepresentations to which the Indictment refers; (3) the misconduct included in the phrase "among other things"; and (4) the identity of any co-conspirators or other participants in the criminal activity. At the April 10, 2003 oral argument, the parties agreed to resolve the issues raised in the Joint Motion in the following manner. Within 60 days, the government would provide a non-preclusive bill of particulars. This initial bill of particulars may be supplemented or amended as the government proceeds with its investigation and uncovers material that may have greater significance than previously furnished material. Six weeks prior to trial, however, at the same time the government provides its witness list to Defendants, the process of supplementation will end, and Defendants will have a final bill of particulars. (Tr. 20, 23, 31-32, 71.)

In light of the resolution of the Joint Motion on consent, the Court turns to the individual motions requesting further bills of particulars and the motion to compel discovery.

DISCUSSION

A. Individual Requests for Bills of Particulars

"A bill of particulars is required only where the charges of the indictment are so general that they do not advise the defendant of the specific acts of which he is accused." United States v. Walsh, 194 F.3d 37, 47 (2d Cir. 1999) (internal quotations omitted). The focus on sufficient specificity preserves the function of the bill of particulars: "enabling defendant to prepare for trial, to prevent surprise, and to interpose a plea of double jeopardy should he be prosecuted a second time for the same offense." United States v. Davidoff, 845 F.2d 1151, 1154 (2d Cir. 1988); see also United States v. Torres, 901 F.2d 205, 234 (2d Cir. 1990). Although disclosure of the government's evidence and theory of the case will not bar an otherwise necessary particularization of the charges, United States v. Barnes, 158 F.3d 662, 665 (2d Cir. 1998), the bill of particulars cannot itself be used as a discovery vehicle or a means to lock the government into its proof. United States v. Fruchter, 104 F. Supp.2d 289, 311-12 (S.D.N.Y. 2000); United States v. Perez, 940 F. Supp. 540, 550 (S.D.N.Y. 1996); United States v. Strawberry, 892 F. Supp. 519, 526 (S.D.N.Y. 1995). The decision whether to order the filing of a bill of particulars is within the sound discretion of the district court. Walsh, 194 F.3d at 47.

John Rigas, Michael Rigas, and Michael Mulcahey each make separate requests for bills of particulars, which are described in turn and considered together. John Rigas was Chairman of the Board of Directors, President and Chief Executive Officer of Adelphia. The Indictment alleges that he was principally and ultimately responsible for the management of Adelphia' s business, and thus it charges him with numerous alleged fraudulent activities and self-dealing transactions. In response, he argues that the government fails to indicate whether he personally participated in, or had personal ...


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