Focus Media under scrutiny by U.S. court

Aug 6, 2001  •  Post A Comment

The U.S. bankruptcy court in Los Angeles ordered Focus Media last week to bring evidence on Sept. 4 to present its case against a filing by its creditors-TV stations and Sears Roebuck & Co.-that would force the media buying company into Chapter 7 bankruptcy.
Last year, Sears said Focus had failed to pay more than $20 million in media invoices. Focus ceased operations last summer.
Focus’ problems became apparent in March 2000, when Sears fired the Santa Monica, Calif.-based company. Sears then sued Focus for money Sears said it had given to Focus to buy local ad time. Focus countersued Sears for money it said was owed to Focus.
Sears had been paying Focus an agency fee of $500,000 a month, equivalent to about a 3 percent commission. After firing Focus, Sears awarded $200 million in annual TV and radio spending formerly at Focus to WPP Group’s MindShare USA, Chicago and New York, giving MindShare a total of $450 million in Sears spending.
It is not clear what assets Focus has; last August, Sears won a contempt citation in a California state court against Tom Rubin, Focus founder and former chairman-CEO, for not turning over Focus financial records.
Mr. Rubin also failed to appear for a creditor’s deposition by July 20. As a result, a court order now says he will not be able to appear to testify in the bankruptcy trial. In a court filing last October, Sears said Focus had failed to pay more than $20 million in media invoices for Sears advertising even though Sears had transferred money to Focus to pay for the media.
Three TV station owners-General Electric Co.’s NBC, The Walt Disney Co.’s ABC and Paxson Communications-last October filed an involuntary bankruptcy petition against Focus in Los Angeles.
Sears’ and Focus’ suit and countersuit were stayed following the bankruptcy petition; Sears then aligned itself with station owners.
Focus ceased operations last summer, according to Eliot Disner, Focus’ attorney at law firm Ervin, Cohen & Jessup in Beverly Hills, Calif. Though it has ceased operations, Focus is contesting the bankruptcy petition.
A court-appointed interim trustee, John Pringle, is overseeing Focus. On the matter of Focus’ financial records, Mr. Disner-in a letter dated March 23 to the TV stations’ attorney-said the trustee had not adequately maintained Focus’ computer system and files, making it hard to access financial records. An attorney representing the trustee said Mr. Pringle had no comment.
TV station creditors are trying to determine what has happened to money they believe Focus owes them for media time purchased for Sears.
In a motion filed May 25 in bankruptcy court, the TV stations asked Focus to explain how “the $5.15 million cashed on 4/13/00 and the $5.2 million cashed on 4/18/00 were utilized” and demanded “records explaining the $3 million wire transfer from Focus to Tom Rubin in 7/00.”
In an interview with Advertising Age earlier this month, Mr. Disner offered some answers. He said the two $5 million payments went to pay Focus’ state and federal taxes. Mr. Disner said Focus paid Mr. Rubin the $3 million for severance.
Mr. Rubin now lives in France, Mr. Disner said. Advertising Age was not able to contact Mr. Rubin directly. However, a friend of Mr. Rubin, former Initiative Media executive Michael Kassan, agreed to contact him on Ad Age’s behalf; at deadline, Mr. Rubin had not called Ad Age with comment.