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Soul of the South Investors Battle Over KMYA License

5 min read

The broadcast license for KMYA-TV, Channel 49, that Soul of the South Network investors are fighting over was an important piece to a funding puzzle two years ago.

Without it, the fledgling venture couldn’t have secured a $10.4 million new markets tax-credit financing package. The struggling 24-hour regional broadcast network targeting African-Americans couldn’t have kept going without additional funding.

On paper, its Rock City Media LLC affiliate was buying the KMYA license as part of the tax-credit funding deal. The seller was I Square Media LLC, which shared some common ownership with Rock City.

However, when the tax credits were issued and the money flowed on May 9, 2014, ownership of the license didn’t lie with I Square or Rock City. Instead, it was still registered to KMYA LLC, owned by Larry Morton and Greg Fess.

Did Arkansas Capital Corp. know that I Square didn’t yet own the license pledged as security in the tax-credit deal, an asset allegedly being acquired by Rock City in connection with the funding?

“I don’t want to speak to what we were told at the time,” said Sam Walls III, president and chief operating officer of Arkansas Capital Corp., which coordinated the new markets tax credit.

It’s also unclear what officials at the Arkansas Development Finance Authority knew or didn’t know about the KMYA license. The agency invested $1 million in Soul of the South through its Arkansas Venture Capital Trust.

Questions to the ADFA were referred to Brad Henry, the vice president of development finance who also represents the agency’s interest as a member of the Soul of the South board of directors. He declined to be interviewed.

Morton and Fess, who owned the broadcast license, each hold 4 percent stakes in Rock City. Morton also served as CEO, COO and a highly paid consultant for Soul of the South, and he holds executive posts at various related concerns such as Southern Soul Broadcasting Inc., SSN Media Gateway and SSN Networks Inc.

“We sold the station to I Square under contract in February,” Morton said of the 2014 transaction. “They made a deposit in May, closed in September and took ownership. Everybody knew that all the way through because the [Soul of the South] board had a meeting about it in March.”

Ownership of the license transferred from KMYA LLC to I Square Media on Sept. 18, 2014. Transaction: $1.9 million. But there was no follow-up transfer of the license to Rock City Media, something expected as part of the tax-credit funding. As far as the Federal Communications Commission is concerned, I Square holds the KMYA license. Depending on who is asked, there was no sale to Rock City.

That became a problem for Arkansas Capital Corp., ADFA and others after I Square filed paperwork to sell the license earlier this year.

A broadcast license, often referred to as the station, is a valuable asset. And for the money-losing Soul of the South Network, KMYA represents a potential financial safety net for creditors and investors alike.

The possible sale of the license in an FCC auction could be worth tens of millions to bandwidth-hungry telecoms and, in a dream scenario, repay creditors and investors.

For now, I Square appears to be in control of the license and any sale. That position is under challenge with the FCC and in an investor lawsuit in Pulaski County Circuit Court.

Dr. Ladly Abraham, one of three leading investors in I Square and chairman of the Soul of the South board of directors, declined to comment to Arkansas Business. He did offer this explanation of the Rock City asset purchase agreement (APA) in an affidavit filed with the FCC:

“This was done in something of a rush, and we did not engage the opinion of independent legal counsel before executing that agreement.

“The Rock City APA presented somewhat of a peculiar situation because when it was executed, I Square had not yet acquired the approval from the FCC to become the licensee of [KMYA], and thus did not yet own [the license].

“It was my understanding that if the transaction between I Square and Rock City were to proceed, it would only become effective and binding after I Square had obtained FCC approval for its acquisition …”

The new markets tax-credit funding documents allude to the KMYA purchase from I Square, and there is even a bill of sale and assignment to Rock City. I Square claims money should’ve changed hands in the deal but didn’t, so there was no sale.

However, I Square was given a promissory note by Rock City indicating a sale occurred. The note was given as part of the new markets tax-credit funding transactions, according to one insider.

It’s another detail in the dispute over a license that was supposed to be the broadcast vehicle for Soul of the South but never was.

The only way to view Soul of the South locally is over the air through a UHF antenna, hardly the most effective way to draw eyeballs for marketing. That signal is courtesy of KKYK-TV, Channel 30, owned by Larry Morton through his Kaleidoscope Foundation Inc.

Moving Soul of the South to KMYA was supposed to be wrapped up as part of the license deal between I Square and Rock City. Instead KMYA remains known for its nostalgic MeTV affiliation.

Investor Impasse

If the KMYA license doesn’t sell in the FCC auction, I Square Media intends to sell it for $2.7 million. That would be good for I Square investors, but not so good for other interested parties.

How to resolve the KMYA license dispute was center stage at the most recent gathering of the Soul of the South board of directors on March 14. But the meeting, held in a conference room at the Arkansas Development Finance Authority, didn’t last long.

Shash Goyal, a director as well as a leading investor in I Square Media, had a heated exchange with fellow SOS director and investor Melba Marshall. It was through Marshall’s efforts that I Square’s proposed sale of KMYA was uncovered at the FCC.

“If you don’t like it, you can leave,” Goyal told Marshall when the dialogue quickly reached loggerheads. “We control this, and there’s nothing you can do about it.”

“What did you just say?” asked a stunned Elizabeth Robben Murray, attorney with Friday Eldredge & Clark representing the ADFA.

The fiery atmosphere wasn’t what ADFA’s Brad Henry had hoped for when he called the meeting to discuss the possibility of bringing in a third party to help calm the waters and find compromise.

The local lawsuit, seeking an injunction against I Square by Marshall, Mac Hogan, Richard Mays and other SOS investors, followed two weeks later.


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