AIR AMERICA'S LONG, ODD SUMMER
(FORTUNE Magazine) – TO LIBERALS, CORPORATE doublespeak and financial shell games rank as cardinal sins. That's why it's been jarring to see the progressive talk-radio network Air America accused of the kind of maneuvering that the Al Frankens of the world would normally rush to condemn.
The seeds were planted in 2004, when Air America's debut was followed by the discovery that the fledgling operation was verging on a financial meltdown. Founder Evan Cohen, an entrepreneur from Guam, was fingered as the main culprit--though he proclaimed his innocence--and ousted. Then, in June, the New York City Department of Investigation announced a probe of financial improprieties at a Bronx Boys & Girls Club. A key player, it soon emerged, was Evan Cohen, who had been holding down a job at the Bronx group while launching Air America. Cohen allegedly helped engineer an $875,000 loan from the nonprofit (Boys & Girls Club) to the merely unprofitable (radio network).
It was a bizarre story, but the new management's public response is proving to be even stranger. Following word of the investigations (Eliot Spitzer's state gumshoes have since joined in), Air America, whose CEO is now former record executive Danny Goldberg, retreated into opaque legalism. An official statement in late July explained that a new entity now controls Air America and that it "had absolutely no involvement" with the Boys & Girls Club. That was technically true, but it left out the fact that the new entity consisted of the same asset--Air America--and many of the same investors, including heavyweights such as RealNetwork's Rob Glaser. In other words, the new entity looked suspiciously like the old entity.
By August, Air America had back-pedaled. A new statement reiterated that "the current owners of Air America radio have no obligation" for the loans. But, it went on, "we agreed months ago to fully compensate the Gloria Wise Boys & Girls Club. ..." Since then, Air America says, it has begun repaying the debt.
The network's strange behavior has been fodder for conservative bloggers. And a second dispute is now stoking their wrath. This suit began when Air America--er, its prior ownership entity--sued MultiCultural Radio Broadcasting, a station owner, for kicking it off the air in two cities in April 2004 because the network hadn't paid its bills. MultiCultural won a $255,000 judgment. Not our problem, says Air America's lawyer Michael Schlesinger of Latham & Watkins. He argues that the current owners bought only the assets of Air America's original owner and left the debts behind. It's "a completely new group of ownership," he says. Hogwash, says Randy Mastro of Gibson Dunn & Crutcher, who represents MultiCultural: "Air America engaged in the oldest trick in the book. They tried to reorganize themselves to avoid paying their debts."
Meantime, Evan Cohen has disappeared from public view--and Air America, whose stations and listenership have actually been growing, is learning a lesson that many corporations have come to the hard way: Legal hairsplitting works better in court than in public. -- Nicholas Varchaver