Adelphia Insider Tells of Secret Accounting

Adelphia Communications Corp. ex-finance Vice President James Brown testified Tuesday that the company kept one set of records to back its inflated financial results and a second, secret set that recorded true performance.

Accounting and operations executives saw the phony records as early as 1997, or five years before Adelphia’s bankruptcy filing in June 2002, Brown said at the fraud trial of founder John Rigas and two of his sons, Michael and Timothy. Brown also detailed several arrangements to inflate financial results as performance lagged at Adelphia, the No. 5 U.S. cable television operator.

Brown, 41, who pleaded guilty to conspiracy at Adelphia, said that he and Timothy Rigas, the former finance chief, relied more on fraud at the end of 2000 because results badly lagged behind investors’ expectations. Brown recounted a talk he had with Timothy Rigas in late January 2001 or early February 2002.

“We just couldn’t push the numbers as hard as we were because it was getting to be a bigger and bigger problem,” Brown told federal jurors in New York on his second day of testimony.

Brown, who referred to his manipulations of Adelphia’s books as “accounting magic,” recounted a conversation he had with John Rigas, 79, a few days later.

“He told me that he felt sorry for Tim and me because the operating results were putting so much pressure on us” to comply with loan covenants, Brown said. “But he said you have to do what you have to do. He said we can’t afford to default.”

Brown is the highest-ranking insider to testify against the Rigases, who are accused of hiding $2.3 billion in debt, stealing $100 million and lying about operations. Brown is cooperating with prosecutors in a bid to reduce a possible 15-year prison term.