United States v. Rigas

490 F.3d 208 (2007)

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United States v. Rigas

United States Court of Appeals for the Second Circuit
490 F.3d 208 (2007)

  • Written by Sharon Feldman, JD

Facts

Timothy and John Rigas (the Rigases) (defendants) were directors and officers of cable television provider Adelphia Communications. The Rigas family founded the company and took it public but still owned and manages some cable companies as Rigas Managed Entities (RMEs). Adelphia raised capital by taking bank loans. Some loans were taken by Adelphia subsidiaries and RMEs through co-borrowing agreements. These agreements required a minimum leverage ratio (the ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA)) and tied the ratio to the interest rate charged to the borrowers. Adelphia artificially inflated EBITDA by (1) increasing the management fees that RMEs owed to Adelphia, and (2) paying more for equipment than it actually cost and having the suppliers repay the difference to Adelphia for purported advertising and market support. The Rigases were indicted and convicted for bank fraud involving two co-borrowing agreements. The United States (plaintiff) argued that Adelphia’s fraudulent manipulation of EBITDA had the effect of lowering the interest payments to the banks. On appeal, the Rigases argued that the evidence was insufficient to prove that the misrepresentations regarding leverage ratios were material.

Rule of Law

Issue

Holding and Reasoning (Wesley, J.)

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