New York City, NY – Adelphia Communications creditors have filed a lawsuit against dozens of banks that made loans to the company and to its founders, the Rigas family.
The lawsuit, filed in Federal Bankruptcy Court in Manhattan, contends that banks such as Citigroup and J. P. Morgan loaned billions of dollars to Adelphia through the use of complex loans, called co-borrowing agreements.
The case against the banks accuses them of conspiring with the family to help perpetrate a fraud.
Federal prosecutors have accused founder John Rigas and his sons, Michael and Timothy, of securing loans primarily with Adelphia assets and then using borrowed funds to buy company stock. The three have pleaded not guilty.
The unsecured creditors, consisting mainly of Adelphia's bond holders, said in court documents that the lenders had provided the Rigas family and Adelphia subsidiaries with loans without judging the borrowers' repaying capacity. The loan facilities were for up to $5.6 billion.
"Neither the Rigas family nor the co-borrowing lenders created a borrowing structure that held the respective co-borrowers accountable based on appropriate borrowing capacity, actual borrowings and their balance sheets," the suit said.
"No attempt was made to recognize -- much less respect -- the corporate separateness and disparate financial resources of the debtors and entities owned by the Rigas family," it added.