According to a press release dated September 11, 2007, a federal judge overseeing the multidistrict action related to Adelphia Communications Corp.'s 2002 implosion removed some claims from an Appaloosa Investment LP-led securities suit that accused myriad banks and financial firms of enabling Adelphia's fraud. Judge Lawrence M. McKenna of the U.S. District Court for the Southern District of New York on Friday granted the defendants' motion to dismiss claims of fraud under section 10 of the Securities Exchange Act against defunct Adelphia's outside directors, lending banks, underwriters, and auditor Deloitte & Touche LLP. McKenna also denied several of the defendants' motions to dismiss various other securities charges. Aggressively seeking restitution, Appaloosa has claimed that it lost hundreds of millions of dollars in the massive fraud scandal that rocked bankrupt cable provider Adelphia. Because the plaintiffs were aware of Adelphia's fraud at the time of their purchases, they could not demonstrate reliance on Adelphia's alleged fraudulent misstatements and omissions, McKenna found.
According to a press release dated October 15, 2006, the U.S. District Court for the Southern District of New York denied shareholders' motion for summary judgment in a securities fraud class action, finding that the shareholders may use the directors' criminal convictions to plead civil fraud, but must show that the convictions met all elements of securities fraud violations. Shareholders sued Adelphia Communications Corp. and several individual directors for securities fraud, alleging violations of § § 10(b), 18 and 20(a) of the Securities and Exchange Act of 1934, and § § s 11 and 15 of the Securities Act of 1933. The shareholders claimed that Adelphia and its directors knowingly concealed billions of dollars of debt in SEC filings, causing its stock to be falsely inflated. The individuals, including the CEO, John Rigas, and his son, Timothy Rigas, who was the executive VP, were criminally convicted of fraud by the SEC. The plaintiffs sought to use the criminal convictions as evidence that the Ri-gases violated § 10(b) of the Exchange Act, § 11 of the Act and various common law fraud allegations. The plaintiffs moved for partial summary judgment on these claims. To state a § 10(b) claim, a shareholder must allege that the defendant made a materially false misrepresentation with scienter in connection with the sale or purchase of securities upon which the shareholder relied, causing the share-holder's economic loss. To state a § 11 claim, a shareholder needs to show that there was a material misstatement or omission in a registration statement.
According to the Notice of Pendency and Proposed Partial Settlements of Class Action, beginning on March 8, 2004, Defendants filed their Motions to Dismiss the Amended Complaint, which Lead Plaintiffs opposed. The Court has not yet ruled on several of the issues raised in the Defendants’ motions, but has partially granted and partially denied some of the motions. After participation in several mediation sessions, Lead Plaintiffs reached agreements in principle to settle the claims against Deloitte & Touche (“D&T”) and certain other Defendants, identified as the Bank Defendants. The terms of the D&T proposed settlement, as outlined in the D&T Stipulation and Agreement of Settlement, create a Settlement Fund in the amount of $210,000,000 for the benefit of a Class. The terms of the Bank Defendants’ proposed settlement, as outlined in the Stipulation and Agreement of Settlement between Lead Plaintiffs and the Bank Defendants, create a Settlement Fund in the amount of $250,000,000 for the benefit of a Class. These settlements have been preliminarily approved by the Court. A Fairness Hearing to determine, among other things, whether these Settlements are fair, reasonable, adequate and in the best interests of the Class, is scheduled for November 10, 2006.
As summarized by Adelphia’s Form 10-K For the Fiscal Year Ended December 31, 2003, on June 25, 2002, Adelphia filed voluntary petitions to reorganize under Chapter 11 in the Bankruptcy Court. On July 23, 2003, the Judicial Panel on Multidistrict Litigation issued an order transferring numerous civil actions to the District Court for the Southern District of New York for consolidated or coordinated pretrial proceedings (the "MDL Proceedings"). On September 15, 2003, proposed lead plaintiffs and proposed co-lead counsel in the consolidated class action were appointed in the MDL Proceedings. On December 22, 2003 lead plaintiffs filed a consolidated class action complaint. Motions to dismiss have been filed by various defendants. As a result of the filing of the Chapter 11 Cases and the protections of the automatic stay, the Company is not named as a defendant in the amended complaint, but is a non-party. The consolidated class action complaint seeks monetary damages of an unspecified amount, rescission and reasonable costs and expenses and such other and future relief as the court may deem just and proper. The individual actions against the Company also seek damages of an unspecified amount. Pursuant to Section 362 of the Bankruptcy Code, all of the securities and derivative claims that were filed against the Company before the bankruptcy filings are automatically stayed and not proceeding as to the Company.
In late 2003, certain actions regarding Adelphia Business Solutions, Inc. securities, originally filed in the Eastern District of Pennsylvania, were transferred to the Southern District of New York and became part of the Multidistrict Litigation, MDL 1529. The Complaint in those filings alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between January 6, 2000 and March 27, 2002, thereby artificially inflating the price of Adelphia Solutions securities. The complaint alleges that, among other things, throughout the Class Period, Adelphia Solutions engaged in deceptive sales practices which artificially inflated the reported number of telecommunications lines that it sold. In addition, the complaint alleges that defendants improperly caused Adelphia Solutions to pay the overhead expenses of Adelphia Communications Inc. ("Adelphia Communications"), a company controlled by defendants which maintained important business ties with Adelphia Solutions and on which Adelphia Solutions depended. Furthermore, according to the complaint, defendants failed to disclose that Adelphia Communications had in excess of $2 billion in off-balance sheet liabilities. On March 1, 2002, Adelphia Solutions announced that it will default on interest payments on certain secured notes. Subsequently, on March 27, 2002, defendants disclosed that Adelphia Communications, along with another entity controlled by defendants, was liable for $2.3 billion of previously-undisclosed debt. On that same day, Adelphia Solutions filed for bankruptcy.
The original complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by issuing materially false and misleading
statements and omitting material information regarding the Company and its
business operations. For example, as alleged in the complaint, defendants
concealed borrowings and understated the Company's debt levels and failed to
adequately disclose the existence of billions of dollars of off-balance sheet
debt. Upon disclosure of these risks, the Company's stock declined from $20.39
per share on March 26, 2002, to $13.12 per share on April 1, 2002.
Several, similar purported class action lawsuits have alo been filed in federal courts in Pennsylvania, New York, South Carolina and New Jersey, and in state courts in New York, Pennsylvania, California and Texas. The SEC has also filed a civil enforcement action.
On August 30, 2010, a Memorandum and Order was issued by the Court directing all of the plaintiff's claims to be dismissed, with leave to replead Count I and Count II within 20 days of the date of the order.