August 5, 2005

Air America: Losing Interest? (Updated)

The New York Sun's David Lombino follows up today on the Air America scandal with news that the loan payback from Piquant Media has lost something in the translation -- namely, the interest owed on it. Piquant Media finally agreed to pay back the $875,000 Evan Cohen misappropriated from Gloria Wise Boys & Girls Clubs for his own personal use and to fund Air America when the netlet seemed ready to collapse. They want to extend payments over two years, but Lombino reports that Piquant will not pay interest on what documents show was supposed to be a loan from Gloria Wise (emphasis mine):

An employee of Air America, who requested anonymity, said yesterday that it received a letter from the city Department of Investigation recommending that the network set up an attorney-managed escrow account for the payments, rather than pay Gloria Wise directly or wait until the department's investigation concludes. The employee said the network made its first payment, of an unknown amount, yesterday.

An official of the city agency, who asked not to be named, said later that the letter asked that the radio network put the entire $875,000 in an escrow account. ...

Piquant LLC, which acquired Air America from Mr. Cohen's Progress Media in May 2004, has agreed to pay $875,000 to Gloria Wise, without interest, in installments over the next two years.

Since when did Piquant decide not to pay interest on the principal? Even if they did not arrange the loans themselves (Michelle Malkin notes that Piquant still has plenty of overlap between old AA ownership and new), extending a reimbursement for misappropriated funds over two years almost by definition should include interest for the retention and use of the ill-gotten monies. Small wonder the DOI wants Piquant to put the cash into escrow; at least that guarantees the payback.

On the other hand, Piquant can claim that the Exempt Media's treatment of the scandal inspired the lack of interest they plan to pay on the stolen funds.

UPDATE and BUMP: CQ's resident non-Power Line attorney, Eric Costello of New York, reviews the issue of the nonpayment of interest in an e-mail this morning:

I, too, read the piece in today's New York Sun about the whole Gloria Wise/Air America/Progress Media/Piquant mess. And piquant it is, too. I think there is one way to cut through some of the fog that you rightly point out in your latest point, the fog produced by the curious lack of interest payments being made by Piquant LLC to Gloria Wise. You need a punch-list of documents to look at. ...

There are, at least, five things at a bare minimum on your punch-list that you would need to help clarify some of the mess here:

(1) Copies of the actual note, or notes, to Gloria Wise from Progress Media and/or Evan Cohen and/or any other entities we haven't heard about yet (let's call them the "Cohen-Progress Group" for the purposes of discussion). (I refuse to believe anyone could be so brain-dead as to dish out $875,000 without getting *something* in writing. Famous last words, I know...)

(2) Copies of the security agreement(s), *if any*, between Gloria Wise and the Cohen-Progress Group.

(3) Copies of the personal and/or corporate guarantees, *if any*, between Gloria Wise and the Cohen-Progress Group.

(4) Copies of the Uniform Commercial Code (UCC) filings, if required by the security agreement(s).

(5) Copies of any documents relating to the assumption by Piquant LLC of the obligations of Progress Media when it acquired Air America.

Why are these documents important? Well, the existence (or not) of these specific types of documents, and the details of their terms, are important in that they will tell us whether this was either a sweetheart deal (including, but not limited to, whether Piquant was trying to shed a loan burdensome to Air America onto Cohen-Progress, whose ability to repay the loan would be very problematic), or something negotiated at arms-length. Recall the obligations of the laws of New York with regard to directors of not-for-profits, which require a prudent approach to these kinds of loans.

For example:

(1) What was the original interest rate on the note(s)? If the interest rate was below the rate that would be charged by, say, Bank of America or JPMorganChase, what was the justification for this?

(2) What were the original terms defining "default" under the notes and/or the security agreements? Did Gloria Wise pass up a number of opportunities to foreclose on the note(s)? If so, why this inaction?

(3) What would be the interest rate if there was a default on the note(s) by the Cohen-Progress Group? Did Gloria Wise demand this default interest rate, if it was applicable?

(4) Did the terms of the original note(s) provide for anything like an interest-free period of time to pay back the loan? If so, this would readily explain why Piquant can legitimately pay the $875,000 back without interest, though it would raise questions as to whether this was truly an arms-length transaction. (You have this kind of loan on your car or house, Cap'n?)

(5) What was the security for the loan(s), in the event of a default on the note(s)? Suppose that Progress Media had pledged its assets, which I will assume for this argument consisted solely of Air America's trademarks, goodwill (I heard that!), and whatever tangible assets Progress had. If Progress defaulted on its loan(s), did Gloria Wise make any effort to act under the security agreement(s), if any, to collect on the security? Put another way, could Gloria Wise have taken over Air America? (This, naturally, assumes that no other lenders could have done the same thing at the same time -- highly unlikely. Usually, in the trade, you see what are called "cross-default" provisions, which means if you default under another loan, it's also a default under other loans.)

(6) Personal and/or corporate guarantees are important. Usually, for businesses that are start-ups (which Air America was and is), a bank or other lender is going to ask for guarantees as extra security before it gives a loan. Hence the importance of seeing if any guarantees were given in this case (arms-length again). Could Gloria Wise have gone after Evan Cohen, personally, for any of the $875,000? If they could have, and didn't, why not?

(7) Finally, under the deal transaction in which Air America passed from the Cohen-Progress Group to Piquant LLC, what happened to the obligations, specifically? Did Piquant assume them outright? Were any terms changed? Did Gloria Wise demand fresh corporate and/or individual guarantees to back these obligations from Piquant's principals? If they got these guarantees, why didn't Gloria Wise exercise them?

I'm most interested in the guarantees and security agreements. If Gloria Wise could have lowered the boom on Air America, but didn't, I think we'd like to know why they were so kind and gentle.

Seeing as I'm a stockholder in the New York Times Company and the Washington Post Company (and don't get me started on their screwed-up corporate structure that rigs the game for the controlling families), I thought the MSM (and maybe ol' Eliot) could use a few pointers in stuff to look for, with specificity.

Hopefully some of the management at the NYT and the Post will heed the call and advice of their shareholder and start asking these questions, and more importantly, start reporting the answers.


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