MANHATTAN (CN) - Goldman Sachs need not face a $63 million case alleging that it helped clients pull off a fraud that sank a cable company more than a decade ago, the 2nd Circuit ruled.
Once the fifth-largest cable company in the United States, Adelphia Communications Corp. filed for bankruptcy in 2002, and brought suit a year later against more than 400 lenders, investment banks and other financial institutions.
That lawsuit accused Goldman, Sachs & Co. and its co-defendants of participating in a massive fraud perpetrated by Adelphia founder John Rigas, his three sons, and others.
Goldman had allegedly loaned millions to Highland Holdings LLP, a company owned by the Rigas family, in 1999, Adelphia claimed. The cable company said the Rigas family used this loan to buy more stock in Adelphia and maintain control over the cable company.
Reports of the Rigas family's fraudulent debt concealment caused Adelphia's stock to plummet, and Goldman issued several margin calls to Highland, according to the lawsuit.
Adelphia wanted to recover $63 million in cash payments that it said the Rigas family took from the company to cover these margin calls.
A federal judge never considered merits of the case, however, because the Rigas family had paid Goldman Sachs back through Adelphia's subsidiary.
"In the District Court, and here, appellant faced the problem that the payments to Goldman were made in the name of the subsidiary, Adelphia Cablevision LLC, that held the concentration account and that has paid all its scheduled creditors, which did not include ACC, in full," Judges Ralph Winter wrote for a three-judge panel of the 2nd Circuit, summarizing the case.
The federal appeals court refused to let Adelphia revisit bankruptcy battles of old.
"The bankruptcy court adopted the asset schedules and approved a plan of reorganization that treated ACC separately from its subsidiaries based on those schedules," the 20-page ruling states, abbreviating Adelphia. "Revisiting the accuracy of those schedules to permit the present action to proceed would clearly threaten the integrity of bankruptcy proceedings."
A Goldman Sachs spokesman said the company was pleased with the decision.
Adelphia's attorney did not return a request for comment.