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Another suit filed in Emmis, financier dispute

March 28, 2011

Add another twist to the litigious battle between Emmis Communications Corp. CEO Jeff Smulyan and the financier that once backed his attempt to take the company private.

The latest salvo is a lawsuit Emmis filed last week in federal court accusing New York-based Alden Global Capital and its manager, Randall Smith, of violating the “short-swing” rule—a securities law designed to prevent insiders from gaining an advantage and profiting from their positions at a company.

The complaint follows a suit Alden filed in February against Emmis and its board of directors, and another brought against Alden in September by a Smulyan-controlled entity called JS Acquisition LLC.

Smulyan called off the going-private bid in September after saying Alden had backed out of an "agreement in principle" to sweeten the deal for preferred shareholders who needed to approve the transaction.

Now, Indianapolis-based Emmis charges that Alden, which holds 1.6 million shares—or more than 10 percent—of Emmis stock, engaged in a series of cash-settled equity swaps, involving 250,000 shares priced at $1 or less.

Securities law considers equity swaps equivalent to buying stock, according to court documents.

Alden then terminated the swaps less than six months later, in April 2010, when Emmis shares were priced at $2.20 each, and earned a profit of about $310,000, the suit said.

That violates short-swing rules, which say a large shareholder of a public company can’t trade its stock less than six months after its last trade of the same stock, Emmis said in its suit.

Emmis shares closed Friday at $1.02.

Founded by Smulyan in 1981, Emmis owns 23 radio stations in the United States and publishes regional magazines in seven cities, including Indianapolis Monthly. It also operates radio stations in Slovakia and Bulgaria.

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