## Facts

- Timothy J. Rigas and John J. Rigas were senior executives and directors of Adelphia Communications Corporation; the Rigas family also controlled affiliated “Rigas Managed Entities” (RMEs).
- Adelphia, its subsidiaries, and RMEs participated in co-borrowing credit facilities in which loan pricing and covenant compliance depended on financial ratios, including a leverage ratio tied to total debt and EBITDA.
- The government alleged a scheme to conceal substantial RME-related debt and to manipulate Adelphia’s reported EBITDA and liabilities to keep leverage ratios within covenant limits and maintain favorable lending terms.
- Alleged methods included inflating management fees owed by RMEs and recording vendor “advertising/marketing support” payments connected to equipment transactions, thereby inflating revenue and EBITDA.
- After its auditor’s recommendations, Adelphia disclosed about $2.2 billion in previously undisclosed liabilities; its stock price dropped sharply and was later delisted.

## Issues

1. Whether securities-fraud and bank-fraud convictions premised on complex financial reporting require proof of specific GAAP violations and testimony from an accounting expert.
2. Whether a government witness (Robert DiBella) impermissibly provided undisclosed expert accounting testimony.
3. Whether the bank-fraud counts were constructively amended at trial or unsupported by sufficient evidence of materiality.
4. Whether admission of uncharged-misconduct evidence constituted a constructive amendment or unfairly prejudiced the defendants.

## Decision

- The Second Circuit affirmed the convictions on all counts except Count 23.
- The court held the government was not required to prove GAAP violations or present an accounting expert to establish securities fraud or bank fraud.
- The court rejected the claim that DiBella’s testimony required reversal, treating the testimony as permissible lay testimony based on personal knowledge and finding any error harmless given the overall proof.
- As to bank fraud, the court found no constructive amendment for Count 22 and held the evidence sufficient to prove materiality.
- The court reversed Count 23 for insufficient evidence of materiality and remanded for entry of a judgment of acquittal on Count 23 and for resentencing.

## Legal Principles

- Criminal securities fraud and bank fraud focus on knowing participation in a deceptive scheme and materially false statements; GAAP compliance is not an element of the offenses.
- The government is not categorically required to present expert accounting testimony if the jury can evaluate the alleged falsity and deception through documents, fact testimony, and other admissible proof.
- A constructive amendment occurs when trial proof or jury instructions alter an essential element so the defendant may be convicted on a basis not charged; evidence consistent with the indictment’s “core of criminality” does not constitute a constructive amendment.
- Materiality in bank fraud requires proof that the misrepresentation had a natural tendency to influence, or was capable of influencing, the financial institution’s decision-making; insufficient proof of that capacity requires acquittal.
- Uncharged-misconduct evidence may be admitted to show intent, knowledge, or the operation of the charged scheme, and does not amount to a constructive amendment when it explains the charged conduct and is paired with limiting instructions.

## Conclusion

The Second Circuit largely sustained the Adelphia fraud convictions, holding that fraud liability did not depend on proving technical GAAP violations or presenting an accounting expert, rejecting claims of constructive amendment and improper testimony, but vacating one bank-fraud conviction because the government failed to prove the alleged misstatements were material to the bank transaction.


United States v. Rigas, 490 F.3d 208 (2d Cir. 2007)