Alden Sues Emmis Over Company Loan To Smulyan
February 17, 2011 at 4:00 AM (PT)
Carrying through on its earlier threat (NET NEWS 2/8), ALDEN GLOBAL CAPITAL is suing EMMIS COMMUNICATIONS over the company loaning JEFF SMULYAN $200,000 to pay his legal fees for his suit against ALDEN for pulling out of his failed buyout bid for EMMIS.
The suit, included in an SEC filing by EMMIS, was filed WEDNESDAY in the Supreme Court of NEW YORK by ALDEN GLOBAL DISTRESSED OPPORTUNITIES MASTER FUND, LP against EMMIS, all members of the EMMIS board, and SMULYAN's JS ACQUISITION, LLC as a Shareholder Derivative Complaint, alleging that EMMIS' board elected to "fund a spurious lawsuit filed by JSA against ALDEN" and that SMULYAN "could not obtain traditional funding for this extraordinarily risky venture that he elected to raid the coffers of EMMIS -- a company that is currently so cash-strapped that it has publicly disclosed that it may not be able to meet its upcoming financial covenants and debt obligations."
The strongly-worded complaint called the loan "an abdication of fiduciary responsibility" and "illegal" under the SARBANES-OXLEY ACT. "Simply put," ALDEN charged, "it is difficult to imagine a scenario of self-dealing more egregious than this – in which the Directors of a publicly traded company unanimously approved a high-risk, illegal Loan to an alter-ego of the CEO of the company so that the CEO could pursue a personal litigation vendetta against a shareholder at a time when the company is already in or approaching insolvency."
ALDEN is seeking recission and revocation of the loan, injunctions against the board and SMULYAN, and unspecified monetary damages. Specifically named in the suit are JEFFREY H. SMULYAN, PATRICK M. WALSH, SUSAN B. BAYH, GARY L. KASEFF, RICHARD A. LEVENTHAL, PETER A. LUND, GREG A. NATHANSON, and LAWRENCE B. SORREL.