Research: Related Party Matters
The topic of discussion involves the Rigas family and their Adelphia Communications Corporation scam. In 2000 they tried hustling investors into believing that their company was doing fine, when in fact they were embezzling over a billion dollars. In their year end 10-K report they noted, under related party, that they paid out over 30 million to its shareholders, which are primarily family members. The question that this paper will answer is whether or not their disclosure was justified.
Conducting Financial Reporting Research: Related Party Matters Through the years 1980 and 2000 their was a plethora of embezzlement going on within huge companies, Enron being the big one. With all these white collar crimes going on, it is hard to keep track of them. There was one scam that doesn’t get the acknowledgment it deserves. Adelphia Corporation and the Rigas family started out as a small communications company in 1952 that went public in 1986. Mainly dealing with cable television, the family owned company became the 6th largest provider in the country. Despite all of its success, in 2002 the company filed for bankruptcy after it disclosed 2.3 billion in off balance sheet debt (Revsine, L., Collins, D., Johnson, W., Mittelstaedt, H., & Soffer, L. 2015). When the problem was investigated further is showed that the Rigases were spreading around money to family owned entities like luxury condominiums in downtown New York. The question arises of whether their related party disclosure had any truth to it. FASB has been hard at work to set parameters to 10-K reports. Under topic 850 in their “rule book” they state, along with other things, that related party transactions may include a family owned entity (IAS Plus ASC 850. 2014). So under note 13 when the Rigases disclosed their family transactions between family entities, they were technically following the rules. But instead of putting down “family entities” they wrote that their principle shareholders are executive officers and have equity interests, and at the end of the note they refer to their investments as “entities owned by certain shareholders.” that to me is a red flag (SEC: Aldephia 10-K Form. 2000). Why would they beat around the bush like that, unless they were hiding something. If you’re an investor, you know that the company is primarily ran by its family members. over 50% of its board members are related. So when it states that it paid over 30 million to entities owned by “primary shareholders” it makes you wonder. In financial analysis, 10-K reports are very important. They tell investors how your company is doing and what kind of people run it. Family owned businesses are already very sketchy, especially one as large as Adelphia. So when they put those notes under “related-party” it really makes it hard for