Tama Broadcasting, with two Daytona Beach African-American brothers as major shareholders, filed a lawsuit in federal court last week accusing its largest creditor of serious violations of federal and state laws as a result of a company restructuring plan gone bad.The federal lawsuit pits Tama and brothers Dr. Glenn W. Cherry and Charles W. Cherry II, owners of nine radio stations in Florida and Georgia, against D.B. Zwirn Special Opportunities Fund, a multibillion-dollar hedge fund that is shutting down after losing the confidence of its wealthy global investors.
Tama operates WTMPAM and FM in Tampa, and four FM radio stations – WJSJ, WSJF, WHJX, and WFJO in Jacksonville, and three FMs in Savannah, Ga.
According to the National Association of Black-Owned Broadcasters, African Americans own only 220 radio and TV facilities of the 29,593 broadcast facilities that exist nationwide, or less than one percent. Tama’s nine stations represent almost five percent of the total number of Black-owned radio stations in America. Tama is the sixth-largest Black-owned broadcasting group in the country. Some consider Radio One, with 54 radio stations, as the largest Blackowned media group, although it is publicly traded.
The Cherry brothers also own substantial interests in Central Florida Communicators Group Inc., which owns the Florida Courier newspaper. Charles W. Cherry II is publisher of the Florida Courier.
The court case accuses Zwirn of trying to illegally sell Tama’s assets, of violating Federal Communications Commission laws by trying to take control of Tama’s nine stations without FCC consent, of interference with Tama’s business relationships, and of various deceptive business and lending practices under state law.
A major point of contention is that Tama leased its nine stations to Zwirn as part of a company restructuring that never happened. Zwirn immediately began to gut the stations, fire employees, and change successful programming and music formats on virtually all the stations, without Tama’s consent. Zwirn’s changes allegedly caused a listener outcry in Tampa, Jacksonville and Savannah.
The lawsuit requests that the court allow Tama to recover money damages for itself and a class of all others “similarly situated as a result of (Zwirn’s) violations of those laws,” including other small businesses located in California, Florida, Ohio, Texas, and Virginia.
Tama claims Zwirn financed firms that were insolvent or in a financial condition that made it clear they did not have the ability to repay the loan, but nonetheless were charged in excess of 28 percent interest. Tama also says that Zwirn’s loans were made only on the basis of asset appraisals.
Zwirn loaned Tama $16.5 million, net of interest and fees, in 2004 to finance the company’s growth. Zwirn now claims Tama owes close to $40 million, including interest and penalties, with the debt increasing at the rate of approximately $600,000 per month. Tama vehemently denies the amount of the debt, and subsequently sued.
Hedge funds are pools of money from wealthy individuals or groups of qualified investors whose net worth must exceed $1 million, have individual income in excess of $200,000, or joint income in excess of $300,000 in the past two years. Hedge fund investors generally are required to invest a minimum of $1 million in the funds. They are considered to be a way for rich foreigners to invest in American-owed assets without serious governmental scrutiny.
Unlike mutual funds, they are not traded on exchanges like the New York Stock Exchange, and are not registered with the federal Securities and Exchange Commission.
Daniel Zwirn, 36, who named the D.B. Zwirn group of funds after himself, earned an M.B.A. from the Harvard Business School in 1998, and then worked for various Wall Street financial institutions before managing a private fund for Dell Computer head Michael Dell.
Zwirn started his own fund in 2004 and began making money for his undisclosed investors at the rate of one to two percent a month. The Zwirn fund began loaning money to Tama Broadcasting and other radio station groups and small businesses around the country around that time.
Zwirn’s various funds doubled in size from 2004 to 2006, growing to $7 billion in 2007. Zwirn’s personal income was estimated at between $40 and $50 million a year before his funds supposedly ran into serious trouble with its investors according to a New York Times article.
“The troubles at D.B. Zwirn did not come as a surprise,” the article said. “In late 2006, the firm uncovered improper money transfers between its funds and improper charges to clients. Later, Mr. Zwirn, in a letter to investors, called the episode ‘completely unacceptable to us and deeply embarrassing.’ The firm paid clients back, with interest. But investors were shaken, and the Securities and Exchange Commission initiated an investigation.
“They stole from their clients,” said one investor who did due diligence on the fund but decided against investing. “I don’t know how you give money to a fund after that.”
“…Investors say the fund did not invest enough in risk management and financial controls required to handle such a big fund, particularly one with investments that are difficult to value. D.B. Zwirn made loans to companies around the world, including some in China.
“In a letter sent to investors, Daniel B. Zwirn, the firm’s founder, said it would take two to four years ‘or longer’ to sell the assets in an orderly fashion. His firm…is closing funds worth about $4 billion,” said the article.
The Cherry brothers believe Tama and other small companies were caught in a web of big-money Wall Street greed and dishonesty. They want other companies, including fellow entrepreneurs who received Zwirn loans as well as Tama’s creditors who were harmed by Zwirn’s conduct, to join the class action lawsuit.
“Zwirn doesn’t own our stations. Zwirn’s leadership evidently believes that various federal laws, especially Federal Communications Commission regulations, and basic fair dealing don’t apply to billion-dollar hedge funds. They tried to destroy Tama Broadcasting because we would not go along with their illegal scheme to control our federally licensed radio stations which serve the public’s interests, not the financial interests of a predatory lender that exists to make money for its secret investors,” said Tama litigation attorney Charles W. Cherry II in a written statement.
“This was a ‘loan to own’ scheme from the beginning, and we anticipate other businesses will join us in this fight. We look forward to arguing our case in front of a jury of ordinary Florida citizens. We hope Congress will assess how hedge funds, as predatory lenders of last resort, affect small, disadvantaged, and minority-owned businesses.
“It’s time to regulate hedge funds that, left unchecked, will facilitate foreign financial control of assets that operate in the public interest, such as transportation, telecommunications, and energy companies. Such foreign control is to the detriment of America’s national security and economic best interests.”
BY KARSCEAL TURNER, FLORIDA COURIER