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Can I Get a (GAAP) Witness?
John and Timothy Rigas ('the Rigases') were convicted in 2004 by a federal jury for their roles in looting millions of dollars from Adelphia Communications Co. and for failing to disclose billions of dollars in company liabilities on Adelphia's financial statements. In their appeal to the Second Circuit, the Rigases argued that because their convictions were predicated on Adelphia's accounting for liabilities in its financial statements, the prosecution was required to call an accounting expert to explain the technical aspects of applicable Generally Accepted Accounting Principles (GAAP). They contend that the failure to do so rendered the jury's verdict reversible.
The Second Circuit recently affirmed all but one of the counts of convictions. U.S v. Rigas, 490 F.3d 208 (2007), holding that the prosecution was not required to call a GAAP expert because compliance with GAAP was not essential to the securities fraud alleged. Instead, the Second Circuit held that the essence of the offense was a failure to disclose material information, and that a lay jury properly could find that the Rigases intentionally misled investors through insufficient or misleading financial-statement disclosures, even if Adelphia's statements were technically GAAP compliant. The Rigases have filed a petition for a writ of certiorari to the Supreme Court.
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