Attorney Defends Luken Actions In Purchase Of Retro TV Programming

Wednesday, July 24, 2013

Attorney Jim Fields, in a Bankruptcy Court motion, defended the actions of Henry Luken in acquiring a Retro TV network. He said the Chattanooga businessman paid a price higher than the actual value.

However, an Arkansas jury earlier ruled Mr. Luken was involved in a “constructive fraudulent transaction” and ordered his Luken Communications to pay a $47.4 million judgment. Attorney Fields filed bankruptcy for the Luken firm soon after the verdict and before the judgment was entered.

Attorney Fields said there are "viable issues" for appealing the verdict.

Randy Rice, trustee who won the judgment, is asking Chattanooga Bankruptcy Judge John Cook to grant relief from the automatic bankruptcy stay.

Attorney Fields said Mr. Luken in June 2008, purchased the corporate stock of Retro Programming Services, Inc., a wholly owned subsidiary of C.A.S.H. Services, Inc., which was a wholly owned subsidiary of Equity Media Holdings Corporation.

He stated, "Retro was a start-up company, having been in existence for a very short period of time prior to the purchase. It had incurred losses and had insubstantial net worth.

"The CEO of Equity Media, Larry Morton, and an employee/consultant named Neal Ardman, were involved in the creation of Retro. They were also involved in self-dealing in that they were trying to extract royalties for the personal benefit from the operation of Retro, based on gross sales of post-net income. Both Morton and Ardman testified in the Arkansas litigation after being relieved from preference claims. Retro had lost money as indicated by its financial statements in June 2008.

"During economic difficulties for Equity Media, both prior to and post 2007 merger, Equity Media floated several projected speculative “evaluations” of several parts of its operations in attempts to attract new lenders or equity investors. For the most part, these failed, except for one transaction and that was the sale of Retro stock to Luken Communciations, LLC.

"In fact, the Trustee, Rice, ended up selling many assets for pennies on the dollar based on other similar conjectural projected valuations. The Holt and BIA 'Valuations' referenced by Rice were nothing more than projected pro forma speculations of what might or could happen in the future if certain assumptions as to level of income, advertising dollars, coverage, households reached, and other assumptions about future operations.

"The Holt report even pre-dated the actual operations and was simply a review of a future business plan. The BIA report also was prepared before operations were in full swing. Both of these reports were highly speculative. These reports were not going concern or fair market value appraisals as of June, 2008.

"For anyone to suggest these speculative pro formas were a going concern, fair market value appraisal in $65 million to $115 million range was folly. A substantial issue for appeal will be the admissibility of the reports as business records or as competent evidence of the fair market value of Retro Television when it was purchased in June 2008 by the Debtor. These are viable issues involved in the litigation in Arkansas.

"Equity Media was a publically traded company. Its 10K filed with the FCC in December 2007, shortly before the Retro Television transaction, indicated that Equity and all of its operations, which included numerous subsidiaries, only showed a total net worth of $15 million. The only asset bought indicated a value less than $2 million on the Balance Sheet. Equity received $18.5 million for Retro Television which had a small net worth and an operating history of losses with no payment of dividends and no proven track record.

"Other factors bearing on the value of Retro Television are as follows:

"1. Equity Media misrepresented the company to Luken Communications as its trademark “RTN” was being contested by Racetrack Television Network and Luken Communications had to discontinue the use of that mark.

"2. The content contract that Retro had with CBS Television was in default and Luken Communications had to pay in excess of $1 million to cure that default.

"3. Equity Media discontinued numerous affiliate relationships and shut off the satellite feed several months after the transaction closed.

"4. Retro continued to lose millions of dollars after it was closed, despite additional funds put in by the owners of Luken Communications. The projections were grossly overstated."

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