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KSL Bankruptcy Clouded by Alleged Embezzling

18 Sep, 2013 By: Doug McPherson

LOS ANGELES – The closing of independent media agency KSL Media, which had a strong footprint in the direct response space, especially with hybrid brand clients, is shrouded in ugly allegations of embezzling.

Last week, the 32-year old shop with 135 employees in New York, Los Angeles and Las Vegas filed for Chapter 11 bankruptcy protection.

The agency’s board was told this summer restructuring wouldn’t work, according to the filing last week with the U.S. Bankruptcy Court for the Central District of California. The company has assets between $10 million and $50 million but liabilities of more than $50 million, the filing says.

Before heading to Chapter 11, KSL tried to find a buyer for the firm but could not. Among other creditors named in the filing, KSL Media owes ESPN nearly $4.2 million; FX more than $1.8 million; and Comedy Central $1.2 million.

Marketers on the agency roster include Petsmart, Toshiba and Sizzler. The company also worked on a number of DR campaigns for marketers like Newegg, Anna’s Linens, Guitar Center and the New York Jets, among others. But, earlier this year, KSL lost Bacardi, which moved its $130 million account from to WPP's Mindshare. On top of that, CEO Hank Cohen left KSL last month.

But perhaps the worst news is that if it hadn’t been for an alleged embezzlement by the firm’s former controller, the company might still be healthy, says Janet Miller-Allen, the agency’s current controller, who’s overseeing the wind-down process of KSL and two affiliated entities, TV10s and Fulcrum 5.

In a statement alongside the company’s bankruptcy petition on Sept. 11, Miller-Allen wrote that KSL’s “financial well-being was seriously undermined in recent years by the criminal malfeasance of the debtor’s former corporate controller, Geoffrey Charness,” who served as controller from 2006 to 2010.

“I am informed and believe that Mr. Charness’ actions have harmed the debtor … leading to tens of millions of dollars in damages and losses,” Miller-Allen stated.

She explained Charness “appears to have taken large sums of money from KSL for the personal benefit of himself and his wife during his employment.” Miller-Allen estimated that he allegedly transferred $145 million of the firm’s money to credit card accounts held by him and his wife. Some of the funds were used to pay KSL expenses, although the agency believes that “a substantial amount of these funds” were used for their own personal benefit.

The company is still trying to determine the total amount of money diverted for the Charness’ personal use, Miller-Allen stated. KSL has sued Charness and his wife Jennifer Charness, along with dozens of yet-to-be-named individuals and entities for allegedly stealing millions.

According to the suit, filed on July 1, Charness set up unauthorized personal and corporate charge card and bank accounts through which he funneled $145 million from 2006 until he was terminated in 2010. Much of that money was used to pay KSL expenses, albeit using unauthorized accounting methods. But as of the time of the filing, KSL alleges Charness and his wife allegedly stole more than $2.5 million from the company.

KSL said in its suit that some of the diverted money was used to fund two side businesses that Charness had set up, including a golf equipment business and a car sales company – and that he “used KSL’s funds to pay for purchases of golf equipment and automobiles and automobile parts.”

Charness and his wife also allegedly accrued some 145 million membership rewards points from unauthorized American Express accounts set up in their names. Jennifer Charness, KSL stressed, “was never employed by KSL” and used her unauthorized card to “make a number of personal purchases. Charness, however, failed to disclose any of these material facts to KSL,” the firm stated.

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