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If the loan is not rescinded by close of business on Feb. 11, Alden said, it will pursue legal action.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


  • 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

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

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. Good Day I am Mr (Victoria Wright) from United state of America, i stayed in NEW YORK, and i have a broke up business, until i found this company email who help me to gain a loan for business,, and now i want to used this short medium to congratulate the below company for the fast and safe money they loan to me without any form of collateral, i loan 500,000USD from the company to save my business and lots more, i saw their mail on the internet, everyone always give testimony for what they did, so i quickly contacted them and they all did everything for me without stress and my money was sent to my account just 3 days later, i was surprise and i feel so glad, now i have a standard business control agent who help me, now i will advice those who need urgent loan to contact him at the bellow email:zenithfirm12@gmail.com

  2. NOTICE:This is to inform the general public that Vampires are real. My name is James Franklyn.,am an agent of vampire,am here to introduce our new world trend to you,a world of vampire where life get easier,we have made so many persons vampires and have turned them rich,you will be assured long life and prosperity,you shall be made to be very sensitive to mental alertness,stronger and also very fast,you will not be restricted to walking at night only even at the very middle of broad day light you will be made to walk.In case you are wildly oppressed by some unscrupulous persons we can still help you fight them.Your protection is assured immediately you join.Just contact the bellow email if you are interested we are here to attend to you anytime you want us. Contact the bellow email for more details. Email:vampirescreed@hotmail.com Sincerely: James Franklyn.

  3. Bravo! Someone else that is willing to speak the truth! Bravo!_____NBCSN is available in almost 2 MILLION more homes than just a few years ago, but Indycar STILL gets less total viewers than it did just a few years ago when NBC took over Versus. Attendance and ratings cratered with the end of season races (just when the title battle got "interesting" HAH!__________And now...new race in Basilia, where Miles celebrated the "rich history" of Indycar racing there. Rich history? What, 7 events in the 100 years of AOW? Yep, some history. Well, at least its an oval. It's not??? Are you kidding me??? Gosh darn road racin furriners.

  4. PURITY RAY LOAN OFFER........ Have you been denied by your banks,or are you in need of of an urgent loan to pay of your bills we are capable of giving loans @ cheaper rate to interested individuals, student, companies and members of the public in need of finance to settle bills, we do offer considerable loans which you can count on. For more information on our various types of loan,then you will have to contact PURITY RAY LOAN FIRM, to help you achieve your desire LOAN APPLICATION FORM TO BE FILLED BORROWERS INFORMATION * Full name:………………………. * SEX * ……………………………. * Country………………………….. * State:……………………………. * Land:…………………………….. * Occupation:…………………….. * phone number:…………………. * Telephone: ………………………….. * Age:………………………………. * Amount needed as loan:……… * Loan Duration:………………….. * Propose of Loan:……………….. * Annual revenue:………………… * Monthly Income:……………….. * Guarantee:………………………. * Payment: monthly or annually Email.....purityrayloanfirm@gmail.com Thank you and God bless Mr Purity Ray PURITY RAY LOAN FIRM we tend to serve you better

  5. Problem: most of the people responding to this article don't know about this service AT ALL! Why? Lack of awareness. This isn't IndyGo. This is CIRTA: might as well be the mattress company because they are asleep at the wheel - something like 3 directors over the last year? Playing with federal grant money is great! This "region" wants commuter rail service, has spent MILLIONS on Transportation studies yet can't even support a commuter bus line? This is largely for suburban riders to get to downtown - not for "service people to work in our hotels and restaurants" ! Get your head out of your backside!! These are professionals, students etc. that don't want to fight traffic, save some money on parking, gas, stress.... if CIRTA would put their federal money into widely promoting the sevive to Greenwood, Fishers & Carmel instead of finding directors and studies - this would be a successful service. Our family uses(d) it daily for the last several years - but the recent uncertainty & now unreliability due to cuts from Carmel has been a problem. Now, costs us an additional $350/month for gas & parking ( $4200/year) plus vehicle wear, service, environmental impact ... YES - this REGION needs this this type of service in order to keep growing and getting the people it needs to fill skilled positions in downtown Indianapolis. Think outside of your own car !!!