Asymmetrical Information

If I understand Professor Bainbridge correctly, if the owners of the selling entity (Air America) are the same as the owners of the purchasing entity (Piquant, LLC) and this is an attempt to avoid having to pay their creditors, then we could be looking at a case of corporate fraud.

Does anyone think that this transaction might be legitimate because (partisanship aside) it seems to me that this is pretty damning.

Thorley - The transaction could very well be legitimate. If the managers of the existing corporation believe that the best way to maximize the value of the corporation's assets is to sell those assets intact, the corporation's creditors would be better off for the sale. This may very well be the case -- the assets may well have more value as part of a going concern than they would being sold off piece by piece.

On the other hand, IF the sale is to a related party, the transaction has the APPEARANCE of self-dealing and few will believe (absent a lot of evidence to the contrary) that the sale was at fair value. If it can be demonstrated that the sale was at fair value, the creditors were not harmed by the sale and the court most likely would let the transaction stand. The problem, of course, is that fair value is a very subjective concept that leaves a lot of room for disagreement.

At bottom, the sale gives us plenty to wonder about, but nothing to date clearly indicates wrong doing related to the sale. The question of whether the original investors were mislead about how much had been contributed to the corporation ($30 million versus $6 million) is by far the larger issue.

It seems to me that the Air America enterprise is based on insisting that there is a particular underserved market that should instantly coalesce around their offerings.

I'm not sure what this insistence is based on - the financial end of their business planning is made to look rather shabby by current events.

David,

Good point on the “fair value.” We’ll have to wait and see on that regard although it certainly looks questionable IMNHO. I’m going to take a “wait-and-see” approach until more relevant information comes out.

With regards to the possibility that investors were mislead, if I understand this correctly of the $30 million was supposed to come from $12 million from the partnership (of which $1 million appears to have actually been invested) with another $18 million pledged from contributors (of which they have received $5 million) - $10 million may or may not have supposed to come from Norman Lear and Laurie David but apparently did not. This means by my rough calculations that there is another $3 million unaccounted for ($18 million minus the $10 million they never got from Lear and David minus the $5 million that was actually invested). I wonder where that was supposed to come from.

It’s possible that this was all just a combination of incompetent business practices and unwary investors and there was no actual fraud. Barring someone producing a document from Cohen or the equivalent, to their investors saying that they had $30 million or another $18 million pledged, I think it would be difficult to prove fraud.

The dubious values here reflect the moral bankruptcy of liberal ideology.

The dubious values here reflect the moral bankruptcy of liberal ideology.

I would hold on painting with that wide of a brush since (a) it is not yet clear (though it looks suspicious IMNHO) that they did anything illegal and even if that turns out to be the case (b) there are plenty of people from all sorts of philosophical persuasions who do crooked things but that does not necessarily reflect on others who share their particular political views.

There's lots of evidence to indicate that our liberal friends are convinced that what's yours is theirs. However, they need not break laws to appropriate other people's property, as they have many clever methods for doing so without legal consequence. The fundamental zeitgeist of the liberal philosophy is that people with assets are selfish in their refusal to share with the less fortunate, and that government should lend a hand in redistributing this accumulated wealth. It's true that philosophy cannot prevent corruption, but it's also true that some philosophies espouse corrupt principles.

It's true that philosophy cannot prevent corruption, but it's also true that some philosophies espouse corrupt principles.

So...what then, in keeping with your deconstruction of Air America we should go fish out the political positions of all major players in the Enron and WorldCom scandals, and see what that tells us about their failures?

"This one was corrupt BECAUSE of his politics, this one IN SPITE of his politics, etc...." That would be kind of fun (it's always a treat to arbitrarily impugn the positions of people who disagree with me) but it doesn't give us much in the way of empirics. Certainly nothing that justifies this:

The dubious values here reflect the moral bankruptcy of liberal ideology.

While fraud is certainly not proven (yet), the whole thing smells to high heaven. Certainly Air America's founders have misled both the public and their investors. If I had any money sunk in this I would be looking at the current sale very carefully to see if a sham transaction could be demonstrated.

What is obvious, however, is that the folks who floated this have no understanding of the broadcast business...and I speak from the perspective of someone who has worked in broadcasting for forty years. I feel little sympathy for those whose money has vanished...they should consider that a little due diligence before investing is appropriate.

One thing that keeps bugging me about this "sale" is all the talk of assets. What assets? Air America's only assets I can think of is the name and the contracts with the on-air talent and support staff, some of which are already in default. They don't own any stations (they lease their airtime, even on their 'flagship', WLIB in NYC), so there are no physical assets that I can think of. So what are they selling off to the Drobnys?

At this point I'm willing to fall back on that tried and true Democratic saying: "The mere appearance of impropriety is enough....."

It sure seems like Air America can pull a Enron and World Com alot better then any republicans can : )

Maybe not better, but they sure seem to be trying hard to set the speed record.

Sorry Nick M. both Enron and World Com are Democrat scandals and not Republican.

Both companies were small regional companies in a government market before Clinton took power. Both made huge payments to Clinton during his Presidency. In return they received sweetheart contracts and favorable regulation rulings that made them large companies.

As soon as Clinton left office both companies collapsed. Remember Clinton’s Secretary of Treasury, Paul Rubin, begged the Bush Administration to prop up those companies. Bush who has ethics refused and the companies failed.

Both Clinton and Rubin should be in jail for their involvement in Enron, World Com and other similar companies.

Bingo, Jake.

I still wonder why everyone (in the media) keeps trying to dump Enron and Worldcom in Bush's lap.

Those are Clinton's babies but the average dope out there thinks that Bush was in the boardroom personally cooking the books. (in Crayon, of course)

Bah, F- the media.

Yesterday's papers also reported that Al Franken is getting paid $1 million a year.

Hey, where do *I* sign up to be champion of the proletariat?

I didn't mention that the same news reports say Air America's ratings in NYC, the only major market where it is on the air at this point, have plunged after a promising start. FWIW.

I've been looking into this. I guess my thoughts distill down along these lines:
1. what entity exists to pay off the creditors?
2. The WSJ made a pretty damming case against Cohen and Sorenson viz. the appearnace of fraudulent conveyance, but good luck and the wind be at your back proving that.
3. Assets? Goodwill only. Franken's name and Randi Rhodes are about what they have. They certainly have little in the way of air rights, no flagship stations et al.

So, since the assets are intangible, "fair market value" can fairly be said to be very low. So even if all the details of the transaction are legal, the practical effect is to relieve the current owners of Corporate debt and keep operating. Since this is all being done during a Republican administration, it obviously illustrates right-wing corruption, just like Enron and Worldcom did.

When you can prove that Air America received sweetheart contracts and favorable regulatory rulings from the Bush Administration to continue its business, please let us know.

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