Meet the CEO Who Owes a Billion

N E W   Y O R K, May 17 -- There are bad loans, and then there are bad loans.

Millions of Americans owe some money to banks, credit-card companies, friends and family or even less savory lenders. But consider the whopping debts racked up by some one-time chief executives who owe money to their former employers — and in the process have seriously damaged the finances of those firms.

Pennsylvania-based cable company Adelphia Communications, for instance, guaranteed $2.3 billion in loans to former chief John J. Rigas and his family — mostly so they could purchase company stock. Amid fallout from the deal, Rigas resigned on Wednesday, followed on Thursday by the exit of his son, Timothy J. Rigas, the firm's chief financial officer.

That comes on the heels of last month's resignation by WorldCom founder and CEO Bernard J. Ebbers — whose exit was largely due to the telecom giant's recent struggles, but who happens to owe the company a cool $408 million as well.

Other firms, like Indiana-based Conseco, have acknowledged similar (if smaller) financial arrangements with executives.

At a time when the financial practices of public companies in America are drawing ever more scrutiny, the predicaments of Adelphia and WorldCom have left observers of corporate ethics shaking their heads.

"I've always thought it was a bad idea," says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "The company is not a bank, it's a company."

Adds Clyde Stickney, a professor of management at Datmouth's Tuck School of Business, in Hanover, N.H: "I would certainly question the ethics of it."

CEO Gamble: Borrowing to Buy Stock

The basic premise of these financial transactions is simple enough: The Rigas family and Ebbers essentially borrowed money from the company, in order to buy the company's stock. They hoped, of course, to see the share price rise, in which case they could have sold the stock, made a profit and paid back the loans.