by Gwen Moritz
Posted 6/25/2013 10:15 am
Updated 6 months ago
A $47.4 million civil verdict in Little Rock on Friday has sent the former CEO of Equity Media Holdings Corp. scrambling for bankruptcy protection in Tennessee.
On Friday, a jury in U.S. District Judge Kristine G. Baker's court found that the transfer of Equity's Retro Television Network to Equity's chairman and CEO, Henry Luken, for $18.5 million "was a constructively fraudulent transfer," as alleged by Equity's bankruptcy trustee.
The jury awarded $47.4 million to the bankruptcy trustee, M. Randy Rice, on behalf of Equity's creditors. Equity, of Little Rock, was formerly listed on the Nasdaq exchange.
Luken Communications LLC turned around and on Sunday filed for Chapter 11 reorganization in U.S. Bankruptcy Court in Chattanooga. The preliminary documents indicate that Luken's business has assets of $10 million to $50 million and liability in the same range, with trustee Rice included among the creditors.
An emergency hearing is scheduled in bankruptcy court on Wednesday, during which Luken Communications plans to ask permission to pay employees the wages they were due before the filing.
"This Chapter 11 filing was prompted by proceedings in a bankruptcy case in Arkansas whereby a trustee in bankruptcy for Equity Media Holdings Corporation was seeking a large judgment relating to the purchase by Debtor [Luken Communications] of Retro Television Network from Equity Media Holdings Corporation," confirms an affidavit by Luken Communication's acting president and CEO, David Leach.
Rice's complaint was filed in December 2010, two years after Equity slid into bankruptcy. The transfer of RTN to Luken Communications happened in June 2008. The purchase price of $18.5 million was in stark contrast to a valuation of $115.8 million just seven months earlier, according to Rice's complaint.
Rice alleged that the transfer of RTN from Equity Media to Luken Communications was made "with actual intent to hinder, delay, or defraud" Equity Media. The complaint also alleged that the transfer might have "resulted in Equity Media becoming insolvent."
Little Rock attorney Allison Rantisi Gladden, who represented Luken Communications in the Rice case, did not immediately respond to a phone call and email seeking comment.
Gregory H. Bevel, the Dallas lawyer who represented Rice, the bankruptcy trustee, told Arkansas Business in an email that he was "fairly certain" that the $47.4 million verdict, if upheld on appeal, would be the largest fraudulent transfer jury verdict in Arkansas history.