Johnson 1 DeMontrez Johnson Tax Evasion Research Paper John Rigas and Sons ACCT 3113 6:00 p.m.- 7:15 p.m
Johnson 2 History of Adelphia John Rigas founded Adelphia in 1952 in Coudersport, Pennsylvania. He did so through the purchase of a small cable franchise for $300. He also relied on a $40,000 loan from a local doctor and a state senator. From this point on, Adelphia began to grow. Most of this growth was do to acquisitions. After many acquisitions, Adelphia grew to become the fifth-largest cable company in the country. Its customer base had grown to more than 5 million customers. Most say that the success of this company can be attributed to Rigas extremely centralized management style. This centralized organizational structure is what is believed to the reason that the Rigases ran into little trouble when covering up their steps. (Adelphia) Centralized organizational structures are made for small business. It usually works for small businesses due to a higher level of trust with the business. This organizational structure also gives a lot of power to the owners of the organization. The centralized structure leave majority of the decision making up to the owners. Once Adelphia became a larger company, the organizational structure should have shifted to a more decentralized organizational structure. (Media, Demand.) John Rigas and Sons Tax Evasion Tax evasion is a national pastime that is growing ever more popular despite the increasing number of casualties created by the use of this unorthodox procedure. There have been many high profile cases built around the idea of making tax evasion a common practice. One of the more famous cases is the tax evasion surrounding the bankruptcy of Adelphia. Founder of Adelphia, John Rigas CEO, and his sons, Timothy, Michael, and James Rigas, were accused of a number of charges including tax evasion, conspiracy to comment securities fraud,
Johnson 3 falsified the companies books and records, bank fraud, securities fraud with the purchase of stock, debentures and notes. The law that they violated was 18U.S.C. 371. This law states: If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both. If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor. (Cornell) Adelphia Accounting Issues The accounting issues within the Adelphia Company lead to the allegations of the tax evasion against John Rigas and his sons. The centralized way that the company was ran aided the Rigas family in their efforts to cover up the white collar crimes they were committing. One of the counts of fraud brought against the Rigases was a securities fraud in violation of 15U.S.C. 78j(b) and 78ff and 17 C.F.R. 240.10b-5. 15 U.S.C 78j(b) states: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement [1] any manipulative or deceptive device or contrivance in
Johnson 4 contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (Cornell) 17 C.F.R. 240.10b-5 states: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. (Cornell) The Rigases broke all of these rules by falsifiying financial statements and wrongfully reallocating huge company bond loans to person accounts. Once the loans were moved to these person accounts, tax evasion was sure to follow. It would be impossible for the Rigases to explain where three hundred million dollars came from if there were audited by the IRS. This would be labeled as a failure to file situation.
Johnson 5 Summary The Rigas have gotten themselves into a very sticky situation that reflects poor ethics on their whole family. If the down fall of a whole corporation was not enough the whole self-image of the Rigas family name has been put into question. The scandal that surrounded the Adelphia bankruptcy ultimately leads to the tax evasion allocations that were filed against the Rigases. After dragging the tax evasion case out for six years, the tax evasion charges against the Rigases were dropped due to the Double Jeopardy Clause. (Press) The Double Jeopardy Clause in the Fifth Amendment to the US Constitution prohibits anyone form being prosecuted twice for substantially the same crime. Even though the Rigases got off due to the Double Jeopardy Clause, all previous accounting violation that happen within the company still stand. Surprisingly there was not a whistleblower in this case. When new management was set in place at Adelphia, they stated that all of the employees seem to be clueless and were shocked that the looting was going on right under their own noses. I attribute this to the way that Adelphia was operated. Even though it was long past the stages of being a family business, John Rigas insisted on continuing to run it as one for obvious reasons. John Rigas is currently serving a twelve year prison sentence. His son Timothy Rigas is currently serving a 17 year prison sentence. (USA v. John Rigas)
Johnson 6 References Aldelphia."History of Adelphia Communications Corporation FundingUniverse." Find Funding with Banks, Investors, and Other Funding Sources FundingUniverse. N.p., n.d. Web. 20 Sept. 2012. <http://www.fundinguniverse.com/company-histories/adelphiacommunications-corporation-history/>. Cornell. "17 CFR 240.10b-5 - Employment of manipulative and deceptive devices. LII / Legal Information Institute." LII LII / Legal Information Institute. N.p., n.d. Web. 20 Sept. 2012. <http://www.law.cornell.edu/cfr/text/17/240.10b-5>. Media, Demand. "Centralized Vs. Decentralized Organizational Structure Chron.com." Small Business - Chron.com. N.p., n.d. Web. 20 Sept. 2012. <http://smallbusiness.chron.com/centralized-vs-decentralized-organizational-structure- 2785.html>. Press, The Associated. "Grand jury adds to Rigas tax evasion charges TribLIVE." Pittsburgh News, Sports, and Events - Tribune-Review. N.p., n.d. Web. 20 Sept. 2012. <http://triblive.com/x/pittsburghtrib/news/breaking/s_579429.html#axzz26xfbw6pa>. USA v. John Rigas"USA v. John Rigas, (3rd Cir. 2010) - Federal Circuits - Status: Precedential - Docket Number: 08-3218 - May 13, 2010 - May 12, 2010 - vlex." Federal Circuits vlex. N.p., n.d. Web. 20 Sept. 2012. <http://federal-circuits.vlex.com/vid/usa-v-johnrigas-201941815>.
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