More on Air America

UPDATE (07-30-05 09:52:00 CDT): Welcome, Hugh Hewitt readers! Be sure to check out the simplified version of this post and also further analysis here and here!

In tracking the recent Air America fiasco, it came to me that there was much to this story that I didn't properly understand. Being a firm believer in the principle that  wisdom consists largely of knowing when you are in over your head, I immediately consulted with two of the smartest lawyers I know,  Pejman Yousefzadeh and another lawyer who is an authority on this subject who preferred to remain nameless (hereinafter referred to as the lawyer-in-the-know). Specifically, I wanted to know about Piquant LLC's potential liability for the fraud of Air America, and whether Air America as a subsidiary might be in legal trouble.

The lawyer-in-the-know weighed in:

I'd have to have followed the facts more carefully, and of course in an actual civil suit or criminal case you'd need to know what jurisdiction's law applies, etc. 

Generally, if you buy a company, that company can still get sued to the extent of its own assets, but you - the parent - don't assume vicarious liability and thus if the sub runs out of money, its victims can't sue you and win (but they WILL sue you 100% of the time).  Principle of corporate separateness, limited liability and all.  But things can get dicier depending on the extent to which (1) he was known to be acting at the time on behalf of Air America, and thus could be seen as an agent for Air America, (2) the extent to which Air America formed some relationship of trust and confidence directly with the clubs, and thus owed them a direct fiduciary duty, or (3) the extent to which AA knew that they were receiving stolen funds and not providing fair value to the sub in return, which could raise fraudulent transfer or abuse of the corporate form issues.

Huh. According to Air America, the transaction in which Piquant LLC purchased the assets of Air America legally occurred on  May 24th, 2004. It begs the question, then, of why, on June 14, 2004, Air America was promoting this camp run by the Boys and Girls club in question and even went so far as to solicit donations on their behalf:

We'll be talking about why for the next few weeks. Your donations (click on the "Camp Air America" ad to the left) have already started coming in. When we're done, we'll fill you in on what you've made possible. I hope you'll be a part of it. 

I'm not a lawyer, but this certainly looks on the surface to be some pretty damning evidence of continued collusion between Air America and some of the folks at Gloria wise even after the transfer to Piquant LLC.

I pressed the lawyer-in-the-know about Piquant's liability for Air America's bilking of public funds, here:

Thanks for the response - it seems, in looking at the facts a little more closely, that this company called Piquant LLC purchased Air America sometime after Cohen embezzled this money on their behalf, and now they're claiming effectively that they can't be sued for what Air America did in the past. Michelle Malkin's got a rundown of the facts here:

http://michellemalkin.com/archives/003127.htm

AFAIK, they are being investigated by the City of New York.

To which he responded:

If Piquant bought AA Radio's assets, rather than buying the company, then the issue as far as direct successor liability becomes whether Piquant paid fair value for the assets.  This isn't as crummy a rule as it sounds:  if I buy a plot of land from Enron for $100K, Enron's creditors can't go after me unless it was worth so much more than that that they could claim that Enron diverted assets to me.  Basically, as long as the original wrongdoer got value, it's up to you the plaintiff to get those assets from the wrongdoer, who remains on the hook.  The practical problem for the plaintiff or the prosecutor is if the people who sold AA have otherwise spent/dissipated the money.

The issues noted below still apply as far as any additional agreements/relationships that may cause Piquant to be directly liable for Cohen's conduct.

Well, I wanted to know, does it matter that Piquant is currently operating Air America?

Does it complicate the matter any that Piquant is still operating Air America effectively as a subsidiary? I mean, I don't know how all the legal relationships work, but they still are on the air and operating, they're just now owned by Piquant. So while this may mean that Piquant can't be held responsible, is there any way of going after AA still?

Said lawyer-in-the-know in response:

It could matter very much whether Piquant acquired AA in an asset sale or bought a company, if the company that was purchased retains liability.

Hmm. Let's just say that Piquant's statement on the matter is somewhat less than helpful:

On MAY 24, 2004 the newly formed PIQUANT LLC acquired the principal assets of AIR AMERICA RADIO from the prior ownership entities. PIQUANT has owned and operated AIR AMERICA RADIO since that time. The company that had run AIR AMERICA RADIO till then no longer had anything to do with the network.

PIQUANT had no involvement whatsoever with funds from GLORIA WISE BOYS &GIRLS CLUB. PIQUANT neither received nor expended any of the sums that are the subject of the City's investigation of the CLUB.

<>

PIQUANT is not being investigated by the City, which is investigating a
transaction that took place before PIQUANT existed.

Hmm.. as far as I can read this, Piquant purchased their radio assets, and they own them as a company (according to Piquant). This is, of course, why lawyers get paid much more than I do - they can make sense out of verbal mumbo-jumbo like this.

I'll try to have more legal analysis up as it becomes available, but at this point, some facts are emerging. First, in its incipient stages, Air America is accused of receiving part of its investment capital through the diversion public funds that were intended for use by Boys and Girls clubs. So far as I know, no one is yet disputing this fact. The only defense they have yet offered is, "We've been purchased since then, so neener neener neener."

No one has yet bothered to answer the question as to whether the money has been repaid to the Boys and Girls club or not. Given that this program is one so near and dear to the heart of liberals - and, indeed, Air America, one would think that they would show a little more concern to returning the money regardless.

Also, and this point cannot be emphasized enough, The O'Franken Factor rates so low that it literally cannot be tracked in some markets. Thus proving the old adage that good money thrown after bad just serves to make a situation worse.

By the way, if you're curious about Pejman's advice, he read through the analysis that the lawyer-in-the-know provided and said, "Me, too." This is, of course, why he gets paid the big bucks. :-)

 

Welcome, readers of Wizbang and Balloon Juice!

UPDATE (07-28-05 17:12:00 CDT): A reader correctly pointed out something that honestly was due to hasty writing, rather than any attempt at deceit. A sentence that was previously in the article seemed to imply that Air America themselves diverted the funds from the Boys and Girls club, which would of course have been well-nigh impossible. Instead, they were the recipients of the diverted funds. I have modified the poorly written sentence for clarification and correction.

Welcome, readers of Michelle Malkin, RadioEqualizer and The Anchoress!

UPDATE (07-29-05 15:13:00 CDT): I am hearing rumbles of increasing volume that Progressive Media and Piquant LLC are literally the exact same people, minus Cohen and Rosen. Streiff at RedState dug up this and this - if that is true, I don't know the legal ramifications exactly, but it's pretty damning information, nonetheless.

Comments

[Al Frankin]

I must disagree with your comment..

"Air America is accused of receiving part of its investment capital by diverting public funds that were intended for use by Boys and Girls clubs. So far as I know, no one is yet disputing this fact."

Air America is not accused of diverting public funds. Someone from this club is accused of diverting public funds. Air America had no access or control over any public funds intended for this club. It would be more correct to say that they may have received public funds that were diverted by someone from this club. Assuming, that is, you care to be correct.

[MachoNachos]

Too right you are. That sentence should read "through the diversion of public funds" not "by diverting public funds". Careless grammar has bitten me in the backside, and I shall correct it.

[Al Frankin]

Thanks for the correction

[Kenneth Greenlee]

Mr. Nachos,

Has the question been raised (excuse the layman terms; I am not a lawyer) whether Piquant LLC was created (solely or primarily) in order to distance themselves from the liability generated by the previous owners?: "yes, what the organization previous to Piquant did was wrong, but that organization no longer exists".

I know that there is a legal principle whereby if you transfer assets to a trust, corp, your wife, etc., and there is reason to believe that you did so to avoid a debt, liability, or seizure, that that transfer can be considered null and the asset can be seized.

Transfer an asset in the course of normal financial planning (and well before any suspicion of wrongdoing), and that transfer stands as legit and the asset is not seizable.

[MachoNachos]

Mr. Greenlee,

Let me addres this as best as I can, fully understanding that I am not a legal expert in these areas.

First, it does not seem, from the facts of the case as we know them, that this is true. Mr. Cohen's organization and this Piquant LLC do seem to be two genuinely separate and unconnected business ventures.

Second, I understood the legal analysis above to indicate that as long as the new corporation sold these assets for a fair price, it will be very hard to nail Piquant on this.

[nocoen]

Al --

If you are so truely concerned about the little guy, why don't you make a donation to the Boys and Girls Club ...

That would go a long way towards repairing the damage caused by the mismanagement of the prior group of crooks that run your so called network...

[R. Teal]

Al Frankin (sp) in the above post states that "Air America had no access or control over any public funds intended for this club." Wrong! The 'access' is Cohen's position as a board member of the Gloria Wise which allowed him to influence Rosen. That's obvious.
The 'control' of the funds was clearly in the hands of Air America
when a check was presented or funds were offered in some manner. At that point Air America (Cohen) could/should have returned the public funds so that they could have been used as intended. That's also obvious. To try to separate Air America from Cohen is simply
being dishonest.

[Cloud Master]

Is it true that there are several common owners of the old Corp and Piquant LLC? Please ask the experts what effect any common ownership or directorship would have on Piquant's liability.

[Becker]

With respect to the principals involved in Piquant, LLC and those involved in the original ownership of AA, they are the same people less Rosen and Cohen.

I would ask your lawyer-in-the-know about the following scenario:

The transaction gives the appearance of a "straw" sale to avoid creditors. A bankruptcy filing could have legally accomplished the same thing except it would have exposed AA to significant negative publicity. It also would have involved the Federal Bankruptcy Court, auditors and all sorts of nastiness with respect to the transaction in question.

[MachoNachos]

Cloudmaster and Mbecker - do you have any links that prove that the leadership of Piquant and Progressive Media are so intertwined? If so, I'm VERY interested to have them.

[zeppenwolf]

What.

Ever.

WHEN do I get to see Al Franken in 'cuffs?