SEC Takes a Dive

I have often criticized Aspiring Governor Eliot Spitzer for his overreaching tactics aimed more at keeping himself on the front page (and in the hearts and minds of voters) than in really catching bad guys.  However, one of the reasons Spitzer gets support for his tactics is that there seems to be an enforcement vacuum at the SEC in pursuing corporate and banking fraud.  The Adelphia case brings us a great example, courtesy of Professor Bainbridge.  It appears that the Rigas family is going to get off with forfeiting some of the assets they plundered - no jail time and no fines!

The Securities and Exchange Commission today announced that it and the United
States Attorney's Office for the Southern District of New York (USAO) reached an
agreement to settle a civil enforcement action and resolve criminal charges
against Adelphia Communications Corporation, its founder John J. Rigas, and his
three sons, Timothy J. Rigas, Michael J. Rigas and James P. Rigas, in one of the
most extensive financial frauds ever to take place at a public company.

In its complaint, the Commission charged that Adelphia, at the direction of
the individual defendants: (1) fraudulently excluded billions of dollars in
liabilities from its consolidated financial statements by hiding them on the
books of off-balance sheet affiliates; (2) falsified operating statistics and
inflated earnings to meet Wall Street estimates; and (3) concealed rampant
self-dealing by the Rigas family, including the undisclosed use of corporate
funds for purchases of Adelphia stock and luxury condominiums. The USAO also
announced that it had entered into a Non-Prosecution Agreement with Adelphia and
had settled forfeiture claims against Rigas family members.

Under the settlement agreement, which is subject to the approval of the
District and Bankruptcy Courts for the Southern District of New York, the Rigas
family members will forfeit in excess of $1.5 billion in assets that they
derived from the fraud, including the Rigas family's interests in certain cable

This is absurd.  The stay-at-home wife of the treasurer of Enron is in the slammer right now but the Rigas's get to walk?  Note that the Rigas's last year were convicted of numerous criminal charges, but there sentencing was delayed so they could negotiate.  I guess they negotiated pretty well.  In my understanding of the cases, this is a much worse case of fraud than Enron.  These guys looted the company for personal gain, and raped their minority stockholders.   Shame on the SEC.