Macho Nachos

Whoops.

It appears that I have made some grievous errors. First, I erroneously claimed the following:

I would, however, remain cautious about going out on a limb over what Franken says. I don't really expect that Sean Hannity would be an authority on the finances of Disney, and I am highly skeptical that Franken has a clue what he is talking about when it comes to the details of the financial arrangements involved.

On another occasion, I further speculated on Franken's ignorance of the actual issues:

I put this down to Franken's general bumbling idiocy, rather than an official statement on behalf of the company.

It appears, per Michelle Malkin, that I was wrong, and Al Franken was in fact knowledgeable of the shady transaction in question - as evidenced by his signature on a document detailing the transaction in question. So, my bad.

The problem is, I should have been right. What major media company involves one of their on-air personalities in their financial dealings? Does Disney consult Sean Hannity before entering into partnerships, or obtaining financing? Does Clear Channel get Rush Limbaugh's signature before buying a new radio station? What in the world is the possible motivation for getting Franken involved in this transaction?

This baffling turn of events signals, to me, a couple of significant things. First, it is a sign of a business that does not know what the heck it is doing. Franken is not entertaining, but it's at least appropriate for Air America to have Franken in his on-air position, given that he is (at least nominally) an entertainer by trade. For them to involve him in negotiations concerning major financial decisions in their country seems, to me, to indicate a gross negligence with shareholder money. I am too busy at this moment to scan through the document and determine whether all of the rest of the investors in Piquant/Progress Media signed on to this document as well, to determine whether they knew who was making decisions about their money.

Although, given their past history, it might be too hard to find enough people who care whether these particular investors were screwed or not to actually push the issue.

The second thing it indicates is that a large number of Franken's on-air comments were not merely ignorant, they were deliberately false - as Michelle catalogs in her post. Basically, his whole defense - I'm just a humble "entertainer" - a defense which was highly plausible, suddenly has come crashing down. Franken's involvement with this scandal on a personal level is stunning.

I would think this would be of far greater interest to some folks in the media than Rush Limbaugh's addiction to prescription drugs (which, to this point, were legally consumed). Well, it might be, if Franken were conservative.

Or if anyone actually listened to his show.

Frisking the Complaint

As most of you know by now, there is quite a scandal brewing involving the lefty talk radio network known as Air America, in which the Gloria Wise Boys and Girls Club of New York is accused of improperly "loaning" the network almost $900,000 which was never repaid. From the very beginning of this story, Michelle Malkin and Brian Maloney have been breaking the news at it happens. At one point, I followed this story down every alley and around every corner - a summary of my work thus far can be found here.

Unfortunately, then, school started again, sucking away my every free moment and most of the mental energy required to post quality material. However, with some of the recent revelations about another lawsuit that Air America is facing, I have decided to frisk through the complaint that Multicultural Radio Broadcasting (MRB) filed against the principal owners of Air America and see what's what. I hope that, as Pejman has opportunity, he will contribute his own thoughts to mine.

Now, for those who are unfamiliar with the civil procedure system, the complaint in a lawsuit is really just the first shot fired in what is sometimes a very long battle. According to the Federal Rules of Procedure, a lawsuit has to begin with a complaint, which has to provide a "short and plain statement of the claim showing that the pleader is entitled to relief." The FRCP even has a "form" which shows how ridiculously simple these complaints are required to be (it's about three sentences long). So, legally, all you are trying to do with your complaint is serve notice that the party you are suing is getting sued, and why.

You're really not even required to make your claims logically consistent, or exclusive to one line of argument, so frequently lawyers will just throw a whole bunch of crap into their complaints and throw it all against the wall in the hopes that at least some of it will stick. Your basic goal, from a legal standpoint, is that you want to state some facts that, if true, would entitle you to legal relief - because if you don't, your complaint might get dismissed.

However, complaints also serve a more strategic value - which is that, if you are trying to get a settlement, you might also load your complaint with a bunch of facts that prove that your case is, indeed, legitimate, and that prove that you have some pretty good knowledge that the defendant is screwed, so that when the defendant's lawyers read through the complaint, they will go to the defendant and ask, "Are these things true? Because if they are, we need to settle." I get the sense from this complaint that, in alleging fraudulent conveyance, they are trying to impress the defendants with their knowledge of all the shady financial deals that they have been involved in.

Paragraphs 1-25 as discussed here involve jurisdiction. The plaintiffs (for reasons, at this point, known only to them) have filed this suit in state court, rather than federal. From what I can see from their complaint, diversity jurisdiction would certainly apply, and they could potentially have filed in federal. However, for (I presume) strategic reasons, they have filed in state court, and thus are establishing the grounds for the court to hear this case, as per paragraphs 23 and 24.

Paragraphs 26-46 outline the facts of the existence of the debt itself. When Air America (Radio Free America) began broadcasting, they apparently leased airtime on two of MRB's stations in Chicago and Los Angeles. The complaint contains a lot of information about the finances of Air America, through which MRB is seeking to prove that Air America was insolvent - that they knew that they were insolvent, and yet they continued to accrue debt they knew they could not pay. You might guess that legally, this is a big no-no. Again, if you as an individual intentionally accrue a bunch of debt with the full knowledge that you intend to file bankruptcy in the near future, the court will generally exempt all that debt from your bankruptcy settlement and force you to pay your creditors in full. I'm not sure because I'm utterly unfamiliar with corporate law, but I'd imagine the same principle applies to corporations.

A couple of the allegations here are damning in the sense that they are ridiculously easy to prove, and quite potentially felonious. For instance, from paragraphs 39-40:

<blockquote>After receiving written notices of default from Multicultural and an opportunity to cure, Radio Free America tendered a $156,000 check in payment of amounts owed under the Chicago agreement. That check was returned for insufficient funds. Radio Free America executives later candidly admitted that they had stopped payment on the check.</blockquote>

Whoops. Aside from the considerations this has for the civil complaint at hand, this activity is felonious - if it can be proved that 1) they knew, in the first place, that the check would not clear and 2) they intended for MRB to rely on the payment of this check to their detriment. 2) is virtually a given in this circumstance - if you write a check to someone for $156,000 - anyone, even a large corporation, will be induced to reliance. Especially given that the check was issued in an attempt to extend broadcasting of Air America over MRB's airwaves, thereby creating detriment from the loss of income they might have received from having, you know, someone who was able to pay leasing their airwaves. So, the contractual issue, to me, is pretty clear. If it is also clear that they knew in the first place that the funds were insufficient, a criminal case could also be forthcoming for fraud and other issues.

Following this, MRB reached settlement with Air America over the continued usage of their airwaves - part of which was the payment of this $156,000. Given that this payment was never received (as MRB alleges), the settlement was never consummated.

The really damaging information in this complaint, however, is in paragraphs 47 through 84 - these are the paragraphs establishing "fraudulent conveyance" - alleging that Air America engaged in a shell transfer of their assets from the company Progress Media to the new corporation Piquant LLC, composed of pretty much the same investors as those from Progress Media. What is very interesting to me is all the information about David Goodfriend, and what he is alleged to have known and informed the defendants of. It seems to me, from reading this complaint, that it's very likely that Mr. Goodfriend sat down at some point and had a chat with some of the lawyers of MRB. If this case goes to trial, and Goodfriend testifies to the truthfulness of half of what is alleged in this complaint - and further that he took these repeated and extreme steps to warn the good folks at Air America that what they were doing was fraudulent and illegal, this could very well become the kind of case in which a message verdict is sent.

And, in the final straw, 85-89 point out that MRB has still not been paid the judgment in a court case that they've already won against these folks.

Now, here is my final conclusion to all of this (fully realizing that I am coming to this party really late by blogging standards). As I said at the beginning of this post, complaints often times have a bunch of stuff that lawyers throw in there in hopes that some of it will eventually stick at the trial, so it's difficult to put much stock in the truthfulness of a complaint - however, given the past behavior of the Drobnys (et al.) thus far in this case, we have no reason whatsoever to disbelieve that any of the allegations contained herein are not true. Further, given the incredible specificity and falsifiability of these allegations, some of which are clearly scandalous in nature (if untrue), it seems unlikely that a lawyer includes them without some kind of verifiable evidence, at the risk of running afoul of FRCP Rule 11 (Lawyer sanctions). I think that the bounced check allegation in particular is pretty cut and dried.

The complaint in question is stamped May 24, 2005. According to various rules that apply based upon how you are finally served with the complaint, you generally have either 20, 60, or 90 days to respond to a complaint with either a response or any number of motions to dismiss/request clarifications. All of those deadlines have passed. Methinks that its time for this blogger to put in a call to the New York County court and see what's what when it comes to this lawsuit. More information as it becomes available.

Air America and the SEC

Brian Maloney has the investigative report for today, and does a great job of covering Nova M, and all the possible issues of "fraudulent conveyance" involved in the formation of this new company. Specifically, however, I'd like to take a look at one of the things Brian said in particular:

Disclosing Air America's future plans to a room full of rabid supporters might seem smart, especially if it brings potential investors to what inside sources say is an effort to raise $5 million to fund the new company.

Was such a public disclosure legal, however? Since Nova M Radio's offering is set up as a private placement, there have been no indicated or available US Securities and Exchange Commission filings.

Could the speech be considered an indirect attempt to solicit investors, in a way that would trigger required SEC disclosures?

As it so happens, I have a... uh... very close relationship with a securities lawyer who worked for several years at the SEC before going private. I ran these sentences by her, in an email that said:

Can you give me a five minute rundown of the regulations that govern disclosure of private offerings? For instance, if someone in charge of a company that is set up as a private placement, and therefore has no filings with the SEC, were to discuss plans for the formation of that company in a very public forum, what are the possible repercussions? Does it hinge on the extent to which that person could be said to have solicited investments for that company?

To which she responded (capitalizaiton and punctuation cleaned up because this was emailed from a Blackberry):

It's hard to give you a rundown in five minutes especially from (current location edited), but the short answer to your question is: Yes, it is possible someone could blow their private offering exemption if they talk with specificity about their company in a public forum (on the internet or get quoted in the press) to the point where they could be said to have made a public offering of their securities.  The remedy would be that their investors could sue for rescission of their investments or the SEC could sue them for violations of Section 5; although, if the investors are all sophisticated and there are no other legal violations this provision is almost never enforced in this context.

So, I translate that roughly as - yes, it's technically illegal, but unless the other investors raise a stink about it, almost never prosecuted. Yet more activity from the Drobnys that skates right on the borderline of legal and illegal, and wanders squarely into the territory of slimy.

I don't want to belabor the point that Brian has already hammered home with great efficiency, but this Nova M maneuver is the most Enron-esque move we've seen from the Drobnys and their Air America partners, yet. Switch the name "Drobny" with "Fastow" and you've got something straight out of Conspiracy of Fools. Will Al Franken condemn this shell game maneuvering?

More at Michelle Malkin.

Investigative Report Breakdown

I've had just a little time to digest some of the massive amounts of information that Michelle and Brian provided yesterday, and I have a few preliminary thoughts. Ideally, I would have several quiet hours to pore over this and formulate something more thorough, but I don't have that kind of time luxury over the next several days, so I will do what I can in brief.

First, the Diamond court order. Now, this order has to do with the payment of legal fees for having essentially lost a lawsuit. Despite the fact that the two parties in the dispute reached a settlement, the judge clearly believed that Air America was on the losing end of that settlement, and accordingly ordered Air America to fork up the legal fees - and additionally gave tehm a scalding for failing to live up to the terms of the settlement agreement. The total that they were ordered to pay, apparently, was $255,518. I haven't had time yet to determine how much of that is settlement money, and how much is attorney's fees.

Next, to the complaint by Multicultural Radio. There are several things about this complaint that I frankly don't understand. If the original judgment was entered June 23, 2004 - in other words, AFTER the transfer of Air America to Piquant LLC, why is Multicultural accusing Piquant of fraudulent conveyance of assets? Further, if they are especially concerned (point 1 of their complaint) with the $255,000 and change that was owed to them as of the November 2004 court order, it makes even less sense to accuse Piquant of fraudulent conveyance of assets to avoid this judgment, given that the assets in question (Air America) were transferred from Progress Media to Piquant LLC in May of 2004 (as I recall. It could have been June).

Now, this is the first company that I'm aware of to flat out accuse Piquant LLC of fraudulent conveyance, which is something that we've speculated might be possible before. But to me, the dates just don't seem to add up at this point.

The second thing that strikes me as a little off about this complaint is that they spend about 1/4 of their time accusing Piquant LLC of fraudulently conveying assets to avoid debt, and then the rest of their time establishing the fact that Piquant has absolutely no money to pay them with anyway. If you're seeking to establish the fact that a company is shifting their assets around to avoid paying you, it seems, to me, to be a little counterproductive to spend most of your time arguing in your complaint that they have no assets at all. But that's just me.

More later as I have a chance to chew over this thoroughly.

Inquirer Blogswarm Story hits Press

At long last, Beth Gillin's piece on the Air America scandal, and the blogswarm that provoked its notice in the MSM, is available online. Be sure to check it out.

This Radio Station Will Self Destruct in 10, 9, 8...

Well, now we know the answer to whether the folks at Piquant have made a good faith effort to pay off the creditors of Progress Media, and also whether the transfer of the AA assets passed muster with the courts. The short answer, they didn't. The term for today, boys and girls, is "fraudulent conveyance."

Michelle Malkin has the full scoop, and I'll try to digest it later tonight.

Media Shows Up to the Party - Two Weeks Late

Michelle has a link up today to the AP Article that is making its rounds amongs the major newspapers. According to Michelle,

the AP article by David Caruso is being carried by dozens of MSM papers, including the New York Times, Los Angeles Times, Washington Post, Baton Rouge Times Picayune, Fort Worth Star Telegram, Myrtle Beach Sun News, Kansas City Star, Tallahassee Democrat, Grand Forks Herald, Bradenton Herald, Columbus Ledger-Enquirer, Duluth News Tribune, Columbus Ledger-Enquirer, philly.com, Biloxi Sun Herald, Monterey County Herald, Fort Wayne News, San Luis Obispo Tribune, Kansas.com, Centre Daily Times, Pioneer Press, Macon Telegraph, Charlotte Observer, Seattle Post Intelligencer, MLive.com, The UK Guardian, Worcester Telegram, Wilmington Morning Star, Times Daily, Tuscaloosa News, The Ledger, and Charleston Sunday Gazette Mail.

I'm exhausted on this story for the moment, so I don't really have a lot to add, except to say that it's actually a little bit of a letdown, and further, it's going to be a little boring for a bit, watching the mainstream media recapitulate the stuff we've been saying for over two weeks now. When they catch back up to us, or when new developments surface, I'll jump back on it.

Thanks to everyone who has read or linked to me during this story.

Day 15: The Times Weighs In!

At long last, we have heard from the local Newspaper of Record on the Air America scam! I'd repaste some of it here, but frankly it's already stuff we have hammered upon ad nauseam here. The only new snippet I found was this:

Ms. Horn added that investigators recently told the network that Mr. Cohen had served simultaneously as the development director for Gloria Wise, although the network was not aware of that at the time.

So far as I know, this claim, that Progress Media was somehow unaware that one of their board members was also the development director for a major local charity, is a first. I guess he sort of forgot that on the resume? Never came up in a background search? Heck, a Google search? Cohen never once mentioned it to the good folks he ran a company with?

They also repeat Al Franken's very dubious claim that Air America no longer has to legally repay the money. We are still waiting to hear an explanation for why the DOI is giving them guidelines for loan repayment if this is so.

Michelle also gets a nice mention in the article, and the Times also recognizes the role of the blogs in bringing this story to the forefront.

On the whole, the article is somewhat less than we'd expect if it was the EIB under consideration, as opposed to Air America.

The good news is that the Times was only behind the Arizona Republic, the Pittsburgh Tribune-Review, The Oregonian, the Washington Times, the Sun, the Post, the Daily News, the Opinion Journal, Investors Business Daily and about a zillion blogs (with no editors!) on this story that almost exclusively happened within the confines of New York. It also makes you wonder, given the fact that papers from across the country beat them by several days, why this story was carried in the local/regional section.

Further good news is that they are only two weeks behind the curve, which means that they are slowly but surely catching up to the rest of the world.

Be sure to check out Michelle's post on this, as well. Kudos to Michelle for providing much of the momentum on this story - without her sticking on it, this probably never sees the light of day.

Cracks in the Armor

The stonewall of MSM silence on the Air America scandal is slowly but surely showing some signs of wear. So far on the list of media outlets to cover the story (outside of the Post, Sun and Daily News):

The Arizona Republic, The Oregonian, Pittsburgh Tribune-Review, and the Washington Times (numerous). Those are the ones that I can find so far. As of yesterday, a reporter for a major newspaper on the Eastern seaboard was contacting Michelle, Brian and me (and perhaps others) for interviews. Thanks largely to blogger coverage of this, Raleigh News Observer editor Melanie Sill is pushing the AP to do a story covering this.

As I pointed out here, if there's one thing the media hates worse than Republicans, it's being left behind on a story that everyone else is covering. Once the momentum builds on a media swarm, you can bet that this is gonna snowball.

As far as the news of this story is concerned, Michelle has this story from the Post about how all of this is affecting the folks at Gloria Wise:

August 11, 2005 -- The Bronx social-services organization that made a controversial loan to the Air America radio network has been rocked by more high-level staff departures, sources said.

Just days after the executive director abruptly resigned following Post reports that the club had provided $875,000 in bizarre loans to Air America, two other top officials at the Gloria Wise Boys & Girls Club have quit.

Acting executive director Lorraine Corva — who took over after Charles Rosen suddenly resigned last week — will be leaving her job on Aug. 26, sources said.

Assistant executive director Jeff Aulenback also resigned, effective immediately, sources said.

Their departures from the embattled social-services agency are tied to the ongoing fallout from the highly unusual and possibly improper loan to Air America, as well as other dubious fiscal practices, sources said.

A spokesman for the club declined to comment on why the two were leaving.

Meanwhile, Air America would have us believe that they are telling the truth, and the DOI is lying:

"The [city] Department of Investigation advised Air America to repay $875,000 into an escrow account from which no money can be disbursed without our approval," said DOI spokeswoman Emily Gest.

"Air America has not followed that recommendation."

But an Air America official told The Post yesterday that both sides had agreed to a payment plan months ago and that they were on schedule with their payments.

Huh. <sarcasm>Well, the good folks at Air America have been so forthcoming and honest throughout this whole ordeal that I guess their word is to be trusted over the DOI's word</sarcasm>. But that's not all! Gloria Wise is also entering the fray:

That was news to the Boys & Girls Club. "Air America has agreed in principle to give the money, but nothing has been finalized yet," Grossman said yesterday.

"They haven't agreed how and when to do it."

Everyone else is lying, and Air America is telling the truth! If you don't believe it, just ask them!

There's also more in here about Eliot Spitzer:

Along with the DOI,state Attorney General Eliot Spitzer also opened an investigation into the case.

A representative from Spitzer's office visited the Boys & Girls Club last week, but so far Air America has not been contacted by the AG's Office, a network official said yesterday.

Why isn't Spitzer interested in speaking with some folks from Air America? Surely the man who involved the State Athletic Commission to go after a radio station for having a slapping competition isn't having trouble finding jurisdiction in this case? Perhaps he just needs to put a little more creative effort into this investigation.

Meanwhile, Brian takes apart Franken's on-air statement on this scandal. I would, however, remain cautious about going out on a limb over what Franken says. I don't really expect that Sean Hannity would be an authority on the finances of Disney, and I am highly skeptical that Franken has a clue what he is talking about when it comes to the details of the financial arrangements involved.

Of course, if it is true that he stopped receiving a paycheck three weeks in (update: a very nice commenter confirmed that this is, in fact, an old "joke" of Franken's. We still have no idea whether it's actually true), then he probably does have a good idea that the company is struggling, financially. But as for his Mr. Subliminal remark about the funds "probably" being used for the operations of Air America, I believe that he is speaking from his nether regions. Of course, I could be wrong, time will tell.

Because I'm Irritated

UPDATE (08-10-05 11:49:00 CDT): It took Captain Ed about five minutes to post a gracious response. I am officially chastised for making him the target of misplaced aggression.

I'd normally not do this to a blogger that I like, but Captain Ed's post today about Air America has me a little steamed. Nothing wrong with the content of the post, you understand, except that it's about 11 days old, and I get no credit for having trumpeted this fact around the blogosphere already. Follow the dots.

Exhibit A: 11 days ago, the day after this story broke in a major way, I posited that Piquant LLC was the same people as Progress Media, minus Cohen and Rosen

Exhibit B: 4 days later, I re-emphasize the point.

Exhibit C: Michelle Malkin picks up my second post on this matter and frontpages it. In particular, she quotes this entire paragraph:

What I can't seem to get over is how everyone seems to treat Piquant LLC as a company that had nothing whatsoever to do with Progress Media and its doings, when in fact Piquant LLC is composed of the same people that made up Progress Media. It is certainly possible that Cohen and Rosen kept some of their fellow investors in the dark about this Gloria Wise deal, but given that Piquant LLC was primarily formed to dodge the legitimate debts of Progress Media, I find it hard to muster much/any sympathy.

Michelle was also kind enough to mention and credit myself and Professor Bainbridge for this on Hugh Hewitt's radio program. Hugh and Brian Maloney also gave me complementary links on this information.

Exhibit D: Captain Ed references the very Michelle Malkin post above.

Now, it's entirely possible that this entire mess is due to oversight, or Ed completely missing me making this point all over the place, and suddenly discovering it himself today. Today, however, I'm grumpy for a variety of reasons, and so I'm taking a minute to vent.

I do want to say thanks to Michelle, Brian, Hugh, Mark Coffey, John Cole, and the numerous others who have expressed appreciation and linked my humble blog on this story. You've helped get my personal creation off the ground faster than I could have imagined. Thanks.