IBJNews

Emmis decision to pay CEO legal fees illegal, financier says

Back to TopCommentsE-mailPrintBookmark and Share

Emmis Communications Corp.’s decision to pay some of CEO Jeff Smulyan’s legal fees in a lawsuit arising from his failed bid to take the company private is illegal, charges the financier who backed out of the deal.

New York-based Alden Global Capital informed Emmis directors Thursday by letter that the company’s $200,000 loan toward Smulyan’s breach-of-contract suit against Alden violates the Sarbanes-Oxley Act.

Alden is demanding, on behalf of Emmis and its shareholders, that directors immediately revoke the loan and recover any proceeds that may have been distributed.

If the loan is not rescinded by close of business on Feb. 11, Alden said, it will pursue legal action.

Emmis’ board unanimously approved the expenditure Dec. 24, according to a filing with the Securities and Exchange Commission. If the litigation is successful, the company will be repaid $300,000 from any financial recovery.

Emmis filed the breach-of-contract lawsuit in September against three Alden Global Capital units that backed out of the going-private deal.

JS Acquisition LLC, the company Smulyan formed to take Emmis private, says the transaction failed when Alden changed course after months of negotiations with a group of preferred shareholders, costing the company $10.2 million in fees and other expenses.

Alden and JS Acquisition agreed in April to help take Emmis private. But, in July, nine dissident investors—holding a combined 38 percent of the company’s preferred shares—emerged to block the $90 million deal.

Alden ultimately pulled out of the transaction, citing a “precipitous” drop in radio-industry assets.

Emmis shares opened Monday morning at $1.06 each, down from a 52-week high of $2.45 reached when the deal to take the company private was announced in April.

Shares late last month rebounded above a $1 threshold the company needs to maintain to avoid delisting on the NASDAQ exchange. Emmis shares have closed above $1 for six consecutive business days and need to stay above the amount for 10 days before May 2 to avoid delisting.

Alden touched upon Emmis’ shaky financial status in its letter to directors.

“Given the apparent dire financial situation Emmis faces, the Board’s decision to loan [Smulyan] a portion of the Company’s remaining cash, which at the very best will not be recovered until the end of protracted litigation, has subjected the Company to imminent injury beyond just the loss of the illegally loaned funds,” a lawyer for Alden wrote.

A spokeswoman for Emmis, however, maintains the loan was “well-vetted” by directors and company lawyers.

“We're confident with the Board's position on the issue, and have equal confidence in the outcome,” spokeswoman Kate Snedeker said via e-mail.

Alden insists the loan violates a section of Sarbanes-Oxley that it says prevents executives of public corporations from exploiting their relationships with directors to make a company a lender of last resort.

Further, the loan violates disclosure laws, Alden argued, because Emmis failed to list it as “compensation” to Smulyan.

“We searched Emmis’ public disclosures in vain for rationale justifying handing Mr. Smulyan a hidden bonus for use in pursuing dubious claims against one of Emmis’ most significant shareholders,” Alden’s letter said.

The breach-of-contract suit JS Acquisition brought against Alden is pending in federal court in Indianapolis.

Founded by Smulyan in 1981, Emmis owns more than 20 radio stations in the United States and publishes regional magazines in numerous cities, including Indianapolis Monthly.
 

ADVERTISEMENT

  • Can't agree with you
    I'm not sure I can agree with you. The article states the money was a 'loan' from the company, which makes it seem like it was have to be repaid. Not sure how Alden could say this was a bonus given that it was a loan.
  • Abuse of power
    Alden is correct in their position. Jeff Smulyan can well afford the attorneys. He is exerting his influence on the board he appointed.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I had read earlier this spring that Noodles & Co was going to open in the Fishers Marketplace (which is SR 37 and 131st St, not 141st St, just FYI). Any word on that? Also, do you happen to know what is being built in Carmel at Pennsylvania and Old Meridian? May just be an office building but I'm not sure.

  2. I'm sorry, but you are flat out wrong. There are few tracks in the world with the history of IMS and probably NO OTHER as widely known and recognized. I don't care what you think about the stat of Indy Car racing, these are pretty hard things to dispute.

  3. Also wondering if there is an update on the Brockway Pub-Danny Boy restaurant/taproom that was planned for the village as well?

  4. Why does the majority get to trample on the rights of the minority? You do realize that banning gay marriage does not rid the world of gay people, right? They are still going to be around and they are still going to continue to exist. The best way to get it all out of the spotlight? LEGALIZE IT! If gay marriage is legal, they will get to stop trying to push for it and you will get to stop seeing it all over the news. Why do Christians get to decide what is moral?? Why do you get to push your religion on others? How would legalizing gay marriage expose their lifestyle to your children? By the way, their lifestyle is going to continue whether gay marriage is legalized or not. It's been legal in Canada for quite a while now and they seem to be doing just fine. What about actual rules handed down by God? What about not working on Sundays? What about obeying your parents? What about adultery? These are in the 10 Commandments, the most important of God's rules. Yet they are all perfectly legal. What about divorce? Only God is allowed to dissolve a marriage so why don't you work hard to get divorce banned? Why do you get to pick and choose the parts of the Bible you care about?

  5. Look at the bright side. With the new Lowe's call center, that means 1000 jobs at $10 bucks an hour. IMS has to be drooling over all that disposable income. If those employees can save all their extra money after bills, in five years they can go to the race LIVE. Can you say attendance boost?

ADVERTISEMENT