A schism among Soul of the South investors has erupted into a lawsuit over control of the venture’s most valuable asset: the broadcast license for KMYA-TV, Channel 49.
One group of investors is challenging another’s legal authority to strike a deal to sell the license for $2.7 million. That transaction, pending approval by the Federal Communications Commission, includes the possibility of sharing in half of any additional money if the license is resold in a national auction.
A dissenting group questions why the would-be buyer, led by broadcast veteran William Pollack of Memphis, is even part of the equation. Why not simply put the license up for auction and reap 100 percent of what could be a very lucrative sale?
Selling the broadcast license represents a glimmer of hope for the battered investors and bruised creditors that include two state agencies who have poured more than $15 million into the money-losing media enterprise in west Little Rock. It could also signal the end of the Soul of the South Network, which has relinquished ownership of the 30,000-SF headquarters it could no longer afford.
Although the internal dispute spilled out of the board room and into the public domain last month, participants remain tight-lipped. But there are documents aplenty that provide insight into the corporate conflict.
That conflict is complicated by the number of limited liability companies and overlapping layers of ownership in a national TV network targeting African-American viewers.
First, investors want the FCC and a court of law to determine whether I Square Media LLC or Rock City Media LLC legally holds the KMYA license. The answer to that question will affect how the proceeds of any sale will be distributed.
And that determination will be harder than it should be because the license was allegedly sold two years ago to Rock City Media. However, the transfer was never reported to the FCC, and the license is held in the name of I Square Media.
Among the interested parties is the Arkansas Development Finance Authority, which invested $1 million through its Arkansas Venture Capital Trust. The money represents a 17.8 percent ownership stake in Soul of the South and makes the trust the single biggest investor.
The Arkansas Economic Development Commission loaned the enterprise $750,000 with an eye toward job creation that has fallen woefully short of expectations.
A complaint filed with the FCC on March 8 was followed three weeks later by a lawsuit in Pulaski County Circuit Court. Both actions seek to block the pending sale of the KMYA license to LR Telecasting LLC, half-owned by Pollack.
The March 28 lawsuit was brought by two limited liability companies and a limited partnership representing the interests of Melba Marshall, Richard Mays and Mac Hogan and a fourth Soul of the South investor, Linda Harding.
Mays filed the suit on behalf of his Skylar Media LLC, Marshall Media LLC and Hogan Family Ltd., Harding and Rock City Media LLC, the corporate umbrella for the Soul of the South Network.
Through her Marshall Media, Melba Marshall petitioned the FCC to deny, dismiss or hold in abeyance the KMYA sale.
The lawsuit and FCC complaint both challenge I Square Media’s control of KMYA and its legal authority to turn the license into cash.
On paper, the KMYA license is held in the name of I Square Media, led by three Soul of the South investors: Shashwat “Shash” Goyal, a Stuttgart hotelier; Dr. Ladly Abraham, a Little Rock pulmonologist; and Dr. Mangaraju “Raj” Chakka, a Little Rock cardiologist.
However, the lawsuit against Goyal, Abraham, Chakka and I Square Media claims the legal holder of the broadcast license is Rock City Media, as does Marshall’s FCC petition.
Those claims are echoed by lawyers representing Arkansas Capital Corp. and its Heartland Renaissance Fund Sub XIX LLC, the largest financier backing Rock City Media.
ACC and the Heartland Fund believe the license was pledged to secure a $6.5 million loan to fund Rock City and its Soul of the South Network in May 2014.
“We’re still in the fact-finding mode and trying to clarify everything and figure out how to resolve all of this,” said Sam Walls III, president and chief operating officer of Arkansas Capital Corp.
Heartland’s attorney, Paul Parnell of the Rose Law Firm, said his client “does not consent to the transfer of station assets purchased by Rock City Media.”
The investor lawsuit and FCC complaint claim the KMYA license was acquired nearly two years ago by Rock City Media as part of a $2.5 million asset purchase agreement with I Square Media.
The transaction was tied to state-assisted funding, the issuance of new market tax credits and conventional loans.
But the license remains in the name of I Square Media. No paperwork requesting approval of the KMYA license assignment to Rock City Media was filed with the FCC.
The lawsuit alleges fraud, breach of contract and more against the I Square Media defendants.
The complaint also asks for an injunction to stop the pending sale of KMYA filed with the FCC by I Square Media and the appointment of a special master to oversee the possible sale of the license in an ongoing FCC auction.
The federal agency opened its Broadcast Incentive Auction last week to buy back bandwidth that will be resold in a second auction to telecommunications companies to feed the wireless demand for more mobile broadband and Wi-Fi service.
On this two-tiered, billion-dollar stage, the KMYA spectrum rights might attract a bid large enough to make creditors and investors at least partially whole.
The opening price range set by the FCC for KMYA lies between $27 million and $60 million in the reverse auction. But industry observers caution that the price range could prove massively inflated compared to what the FCC is willing to offer or even if an offer is made on a given license.
While the months-long FCC auction has just started rolling, the battle over the KMYA license officially started taking shape in January.
That’s when I Square Media filed paperwork seeking FCC approval to sell the license and station assets to LR Telecasting.
Ownership of LR Telecasting is split 50/50 between William Pollack and Gina Robbins. While Robbins is an unknown quantity to the FCC, Pollack isn’t.
He owns a one-third stake in Pollack/Belz Communication Co., which holds the licenses for both KLAX-TV, an ABC affiliate in Alexandria, Louisiana, and KIEM-TV, an NBC affiliate in Eureka, California. Pollack also has ownership positions in a number of radio stations.
As the potential buyer, LR Telecasting is named as a defendant in the lawsuit challenging I Square Media’s right to sell the license.
The various ownerships and entities contribute a layer of complexity to the dispute as detailed in court and FCC filings.
The ownership of Rock City Media is divvied between SSN Funding Ltd., 89 percent; Larry Morton and Greg Fess, 4 percent each; and William Campbell, 3 percent.
Morton, Fess and Campbell are associated with the general partner of SSN Funding, which at last report is SSN New Management LLC.
Morton and Fess also were the previous holders of the KFYA license through a series of corporations and LLCs.
I Square Media bought the license from KMYA LLC, led by Morton and his associates, for $1.9 million in February 2014.
In the FCC complaint filed by Marshall Media, Morton is described as I Square’s consultant and is portrayed as a responsible party in the failure to assign KMYA’s license to Rock City Media after the sale.
In addition, Morton was paid $200,000 annually as part of a three-year consulting contract with Soul of the South Network.
On paper, SSN Funding, the majority owner of Rock City Media, held a 10 percent stake in I Square Media.
But the limited partnership is absent from the license transfer filing by Goyal, Abraham, Chakka.
Goyal, Abraham and Chakka also are limited partners in SSN Funding. The investor lawsuit alleges they breached their fiduciary duty as Soul of the South directors.
Financiers of Rock City Media/Soul of the South Network
Heartland Renaissance Fund Sub XIX LLC
Pacesetter CDE XII LLC
Arkansas Economic Development Commission
Executives announced the Soul of the South Network in April 2013, describing plans for a 24-hour regional broadcast network that would target African-Americans and employ 150 people at its Little Rock headquarters.
Its backers included Richard Mays, former Arkansas Supreme Court Justice; and Larry Morton, former CEO of the bankrupt Equity Broadcasting Co.
Since launching , the network has been dogged by financial and legal problems that alleged breach of contract and misuse of funds.
Uncertainty and confusion about the state of the operations, an attempt to remove a general partner and questions about the future followed. The company also laid off about a quarter of its workforce, which has since dwindled to a mere skeleton operation.
— Lance Turner