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Randy Phillips steps down as LiveStyle CEO

Randy Phillips, the man who helped to salvage SFX Entertainment post LiveStyle rebrand, is stepping down as the company’s chief executive, as first reported by Billboard.

Phillips will stay on at LiveStyle as a consultant to investors, as the company prepares to sell off several of its assets.

The former LiveStyle boss will now focus on managing US boy band Why Don’t We, whom he states “are really starting to take off”.

Phillips took over the running of Robert Sillerman-founded SFX Entertainment in early 2017. The company had become insolvent two years after launching and Phillips was brought onboard to turn it around as the company emerged from bankruptcy. He led the dance music behemoth, rebranded as LiveStyle, for three years.

In just one year, Phillips turned losses of US$30 million into earnings of $20m.

Randy Phillips, the man who helped to salvage SFX Entertainment post LiveStyle rebrand,  is stepping down as the company’s chief executive

“I was given my mission and I fulfilled my mission,” says Phillips. Under his leadership, LiveStyle sold assets including Paylogic to Vivendi and a minority stake in Rock in Rio to Live Nation and axed the US-leg of festival Mysteryland.

During Phillips’ tenure, LiveStyle made a number of high-profile hires, including Hard Events founder Gary Richards (president, North America), ex-Universal Music Group executive Chris Monaco (chief revenue officer) and NRG Productions founder Neil Ryan (senior vice president and head of North America production).

Prior to his work at LiveStyle, Phillips served as chief executive of AEG Live.

LiveStyle produces dance music festivals including Electric Zoo, Defqon.1 and Awakenings, operating through promoters and entertainment companies including Made Event and All My Friends in the United States, ID&T in the Netherlands and majority DEAG-owned I-Motion in Germany.

SFX founder Sillerman was recently charged with fraud in relation to his online publishing business, Function(x).

 


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Robert Sillerman fined $179,000 for investment fraud

Robert Sillerman has been charged with fraud by the US Securities and Exchange Commission (SEC), which has ordered the former SFX Entertainment CEO to pay a fine of US$179,000, as well as barring him permanently from serving as the director or officer of a business.

The SEC’s complaint, filed on 28 June, relates Sillerman’s post-SFX online publishing business, Function(x), which was quietly wound up last year after Sillerman was forced into bankruptcy by a creditor, Chicago promoter React Presents, which was owed $10 million in acquisition costs.

SFX filed for bankruptcy in February 2016 with debts of almost half a billion dollars, run up in a bid to rapidly consolidate the dance music sector (aping the roll-up of rock promoters in the early 2000s by the original SFX – now Live Nation).

Function(x) – an online news outfit specialising in clickable ‘viral’ content – ran into trouble in 2017, furloughed three quarters of its employees that September after finding itself unable to pay their wages. The lay-offs came after the company was delisted from the Nasdaq stock exchange after failing to meet the deadline for filing its quarterly report, and amid reports of unauthorised withdrawals to Sillerman from the company’s bank accounts.

Following the collapse of Function(x), the SEC (h/t Billboard) has charged Sillerman with “orchestrating an offering fraud” and “diverting offering proceeds to repay loans he had previously made to the company”.

The complaint elaborates: “Function(x), Inc., formerly an online publishing and entertainment business, incurred significant losses during the first quarter of 2017. To raise capital and fund its operations, Function(x) completed a public securities offering in February 2017, which brought in $4.8 million from investors. The complaint alleges that Sillerman fraudulently diverted $500,000 of the offering proceeds to repay certain loans he had made to Function(x).

“To induce investments in this offering, Sillerman falsely claimed that two celebrities had agreed to invest in the company”

“Then, in April and May 2017, Sillerman allegedly led efforts to raise additional money for Function(x) through a private securities offering. The SEC’s complaint alleges that to induce investments in this offering, Sillerman falsely claimed that two celebrities had agreed to invest in the company.

“The SEC further alleges that Sillerman created phony [sic] subscription documents, with forged signatures, purportedly from the two celebrities. Function(x) publicly announced that the offering had raised $10 million, which would be used for working capital and corporate expansion.

“In reality, however, the complaint alleges that Function(x) raised only half that amount and that Sillerman diverted all of the proceeds to his personal bank accounts, as further repayment of loans he had made to Function(x). Throughout his fraudulent scheme, Sillerman also allegedly ignored Function(x)’s internal accounting controls and failed to obtain approval to use offering proceeds to repay his loans.”

According to the SEC, Sillerman has agreed to pay the fine, as well as to a permanent “director-and-office bar”, pursuant to the resolution of his ongoing bankruptcy process.

The commission opened its investigation into Function(x) in November 2018, after the company was struck off the securities register for failing to file financial reports.

 


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Function(x) future unclear as Sillerman heads for bankruptcy

Robert Sillerman’s troubled Function(x) web business is edging closer to insolvency following attempts by creditors to force the former SFX Entertainment chief into involuntary bankruptcy.

Chicago-based EDM promoter React Presents and its ticketing platform, ClubTix, in December 2017 won a judgment against Sillerman over an unpaid US$10m promissory note relating to the company’s 2014 acquisition by SFX. SFX filed for bankruptcy in February 2016 owing almost half a billion dollars.

Sillerman has since filed a petition to convert React’s request for ‘chapter 7’ (ie straight, or liquidation) bankruptcy into chapter 11 bankruptcy, wherein the bankrupt debtor is able to keep the company alive while they restructure.

Now, Sillerman’s current financial woes have caused his new company, Function(x) – an online news outfit specialising in clickable ‘viral’ content, which Sillerman has grown aggressively through rapid SFX-style consolidation – to warn the company could be facing a difficult future without monetary support from its CEO.

“There are no assurances the company will be able to secure an alternative source of funding”

In its latest current report filing with the US Securities and Exchange Commission (SEC), Function(x) explains to shareholders that, as executive chairman and CEO, Sillerman has historically provided “support to the company in form of cash and guarantees of company’s obligations”.

However, it warns, Sillerman may now “be unable to provide financial support to the company in the foreseeable future”, and that “there are no assurances the company will be able to secure an alternative source of funding.”

Function(x) furloughed three quarters of its employees last September after finding itself unable to pay their wages. In June, the company was delisted from the Nasdaq stock exchange after failing to meet the deadline for filing its quarterly report.

 


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Function(x) furloughs 75% of its employees

Three quarters of staff at Function(x), the troubled online business founded by former SFX Entertainment CEO Robert Sillerman, have been effectively laid off, with the company telling investors it lacks the funds to pay them.

In its most recent 8-K filing with the US Securities and Exchange Commission (SEC), Function(x) reveals it has been operating with a skeleton staff since 15 September, when 22 of its 31 employees were put on indefinite furlough owing to a lack of “sufficient available funds to continue their employment at this time”.

A furlough – a term chiefly used in the US – is a temporary leave of absence imposed on employees by a company, especially one facing unfavourable economic circumstances.

“Any such decision by the company will depend, in part, on whether adequate funding can be obtained”

In Function(x)’s case, the business says it is “considering whether it will offer any or all of the furloughed employees re-employment” – a decision dependent, “in part, on whether adequate funding can be obtained, and there is no such assurance that may happen”.

Function(x), which specialises in ‘viral’ online content, has been in a downward spiral since early summer, culminating in its delisting from the Nasdaq stock exchange after failing to file an up-to-date current report. In June, auditors for the company resigned after discovering alleged “insufficiently authorised cash disbursements” to Sillerman from its bank accounts.

 


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Sillerman auditor resigns over “illegal” withdrawals

Accountancy firm BDO USA, LLP, formerly auditor for Robert Sillerman’s troubled Function(x) web business, has resigned amid allegations of “insufficiently authorised cash disbursements” to Sillerman from company bank accounts.

In a 21 June letter to Function(x)’s CFO, Michelle Lanken, and general counsel, Tom McLean, BDO said it had, through a phone conversation on 12 May, been made “aware of information indicating that an ‘illegal act’ […] may have occurred”.

It continues: “BDO stated that information provided to it at the time of the phone conversation […] included insufficiently authorised cash disbursements from a [Function(x)] bank account, unexplained deposits into the same registrant bank account and possible repayment to the registrant’s chairman of the board, chief executive officer and controlling shareholder [Sillerman] in excess of the amount owed to him under his line of credit to the registrant.”

The letter says the “possible payments” include a US$500,000 cash withdrawal by Sillerman in March 2017, “done without proper approval from the board”, and, more seriously, a total of $6.1m “released from a [Function(x)] bank account into an account held by the CEO at the same financial institution”.

The findings mirror similar allegations levelled at Sillerman in the final months of SFX Entertainment

At BDO’s request, it and Function(x) hired a third-party law firm to investigate the missing money, as well as alleged irregularities relating to a recent series-G stock offering. It concluded that there were “likely illegal acts committed by the CEO and the registrant [Function(x)]”, including “false and misleading statements in connection with the series-G offering”.

The findings mirror similar allegations levelled at Sillerman in the final months of SFX Entertainment, when he was accused of making “misleading statements” designed to boost the ailing business’s attractiveness to investors.

He denies any “wilful” wrongdoing, saying he was “misinformed as to the amounts outstanding on loans the CEO had made to the company” and paid Function(x) back as soon as he realised the error.

Function(x), which specialises in ‘viral’ online content, was last week delisted from the Nasdaq stock exchange after failing to file an up-to-date current report.

 


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Sillerman upbeat as Function(x) is delisted

As threatened at the beginning of June, former SFX Entertainment CEO Robert Sillerman’s new online news business, Function(x), has been delisted from the Nasdaq stock exchange, with trading in its stock suspended from opening of business today.

The business has yet to file an up-to-date quarterly report (10-Q) – which under Nasdaq rules constitutes a “public information failure” – and said in a recent filing it anticipates defaulting on US$3 million promissory note, in a scenario reminiscent of the financial problems that plagued the final months of SFX, which collapsed under a mountain of debt last February.

In a new 8-K filing, Function(x) – which has been rapidly buying up much of the online ‘viral content’ (clickbait) market – says it will continue trading stocks ‘over the counter’, or off-exchange, without the supervision of the Nasdaq.

“The company came to the conclusion that the overhang of uncertainty, and the continuing expense related to these issues, were an unnecessary cost and distraction as we execute on our vision,” says Sillerman. “Nothing has changed in our stated goals to become the preeminent digital media publisher.

“Nothing has changed in our stated goals to become the preeminent digital media publisher”

“We intend to file our 10-Q in the near term, and follow all necessary steps to both be a responsible and productive public company and accelerate our growth trajectory.”

Simply Wall St, a website which provides market advice to investors, isn’t so confident: It suggests Function(x) has a “concerning amount of debt” and may be at risk of succumbing to its debt load. According to the site, Function(x)’s operating cashflow remains at around -100% of its debt, with a debt-to-equity ratio of 279.8%.

“Clearly, Function(x) has a concerning amount of debt on its balance sheet,” writes Simply Wall St’s Arjun Bhatia. “Additionally, the company fails to impress in terms of generating strong enough operating cashflows and earnings to cover annual interest expenses. Thus, for now, I don’t find it a financially sound company.”

Function(x)’s stocks have fallen in value by almost 50% in last 30 days, from a high of $0.70 on 26 May to $0.39 today.

 


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Function(x) threatened with Nasdaq delisting

Function(x), the rapidly expanding online news business led by ex-SFX Entertainment CEO Robert FX Sillerman, has been threatened with delisting from the Nasdaq for the non-filing of financial information.

Function(x) has yet to submit a form 10-Q – a quarterly financial report which must be filed with the Securities and Exchange Commission (SEC) by all public companies in the US – for the latest quarter, and will be delisted unless it “requests a hearing before the Nasdaq hearings panel”, the New York stock exchange announced today.

The company contacted Nasdaq yesterday to request a hearing, which automatically delays its delisting for a period of 15 days.

A separate form, 8-K – which notifies shareholders of any significant events that may affect their investment – reveals Function(x) will ask Nasdaq for an extended delay from delisting while it gets its affairs in order, although it notes “there can be no assurance that the stay will be extended or that the panel will ultimately grant the company’s request for continued listing on Nasdaq”.

The late filing of Function(x)’s quarterly accounts, reveals the 8-K, constitutes a “public information failure”.

“The company does not anticipate it will be able to pay the note on the due date and therefore will be in default”

This means the company will be obliged to pay one of its creditors – the holder of US$3 million promissory note, issued following its recent acquisition of Rant, Inc. – “an amount in cash equal to one percent (1%) of the greater of the product of (A) the aggregate number of shares of common stock which the holder is entitled to convert pursuant to the [promissory] note and (B) the closing bid price of the common stock on the trading day immediately preceding the public information failure”. (That was, according to the document, 24 May, when its share price stood at $0.66 – it’s now around $0.62.)

Payment is due on “on the earlier of the last day of the month in which the public information failure occurred and the third business day after the failure is cured” – by our calculations, 31 May. According to the form, Function(x) “does not anticipate it will be able to pay the note on the due date” and “therefore will be in default under the note on the date that is five business days following the due date”.

Sillerman’s previous venture, EDM promotion conglomerate SFX Entertainment, collapsed under a mountain of debt last February, since being revived under new management as LiveStyle Inc.

 


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Sillerman’s Function(x) on clickbait buying spree

Function(x), led by Robert FX Sillerman, has announced the US$25 million acquisition of ViralNova – a self-described aggregator for “trending stories on the web” with an estimated 29m unique monthly visitors – as the former SFX Entertainment CEO applies his consolidation-focused SFX business model to the world of online clickbait.

Sean Beckner, the owner of ViralNova parent BumpClick LLC, will receive $10m in cash and $15m worth of Function(x) shares. ViralNova, which collates clickable content with titles like The Cause Of This Little Boy’s Death Will Make You Feel Sick. This Is Tragic. and Everything Seems Normal At This Mall, But Just Watch The Escalator — OMG designed to be shared on social media, was bought for four times that by Zealot Networks in July 2015; the lower purchase price reflects a subsequent decline in site visitors.

It follows Function(x)’s acquisition of Rant Inc. – which operates Wetpaint, an entertainment website for young females, as well as Rantsports.com, Rantgamer.com, Rantlifestyle.com, Rantpets.com, Rantbeats.com, etc., etc. – for around $5m last July.

“Consumer appetite for content is as voracious as ever and showing no signs of relenting, as content is devoured by consumers globally at a blistering pace every minute of the day,” reads the press release from Function(x) (h/t Amplify).

“[C]ontent is king and distribution is a queen of equal power.

“Consumer appetite for content is as voracious as ever … Function(x) is aggressively building a portfolio of assets in a bid to capture as much of that market as possible”

“Function(x), Inc., led by media mogul Robert FX Sillerman, is aggressively building a portfolio of assets in a bid to corral viewers and capture as much of that market as possible.”

Sillerman – who was outed as head of then-bankrupt SFX (now LiveStyle) and replaced by ex-AEG Live CEO Randy Phillips in November – comments: “We are excited to acquire a rapidly growing digital platform, especially one run by an experienced industry professional.

“We believe that the synergies between our two companies are substantial, and when combined with Sean’s expertise and experience, this acquisition will be instantly accretive to our business. [S]trategic acquisitions such as BumpClick are an integral part of our strategy. We are thrilled to have come to agreement.”

Function(x)’s most recent financial statement shows the company generated revenues of $1.22m in Q2 2017 (October–December 2016), for a net loss of $1.62m.

 


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SFX considering legal action against Sillerman

The new management of SFX Entertainment – believed to be led by two senior creditors, investment firms Allianz and Axar Capital Management – has signalled its intention to bring charges against the company’s former directors, including ex-CEO Robert FX Sillerman.

In new documents, filed in the Delaware bankruptcy court yesterday, outlining an alternative post-bankruptcy plan for the dance music promotion group following the axing last month of its previous restructuring support agreement (RSA), SFX (‘the debtors’) says it may seek damages for “breaches of fiduciary duty by former directors and officers of the debtors, and avoidance actions, such as fraudulent transfer claims under federal and state law”.

The alleged violations of fiduciary duty – defined in Delaware as the duty of loyalty by people controlling a company to look to after its interests, not their own – relate to Sillerman’s repeated failed attempts to take the company private, and include “breaches of SIC’s [Sillerman Investment Company III’s] commitment to purchase series-A preferred stock, the two failed merger offers and other general breaches of fiduciary duty relating to insider transactions and funding issues”.

The new leadership may seek damages for “breaches of fiduciary duty by former directors and officers of the debtors”

SFX’s new leadership may also seek to recover “amounts reimbursed to Sillerman” during the bankruptcy process, as well as “licensing fees, employee compensation, a cash collateral release [and] certain settlement payments” and “the termination fee the company paid in connection with the termination of the merger agreement”, which relates to a failed 26 May 2015 merger between SFX Entertainment and two other companies forming part of Sillerman’s labyrinthine EDM empire, SFXE Acquisition LLC and SFXE Merger Sub, Inc.

The revised post-bankruptcy plan will go before US bankruptcy judge Mary F. Walrath for approval on 30 August. Randy Phillips, the former CEO of AEG Live, is expected to be named chief executive of the new-look SFX.

 


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‘Why is Sillerman still earning $35K from SFX?’

Guevoura Fund Ltd – a hedge fund currently suing Robert FX Sillerman over claims that the former SFX Entertainment CEO misrepresented the company’s health to investors in his last bid to take now-bankrupt SFX private – has asked that Sillerman be stripped of his SFX salary and health insurance, arguing that neither were mentioned in the company’s February bankruptcy proceedings.

Documents filed yesterday in the Delaware bankruptcy court reveal that Sillerman (pictured), who now sits as chairman of the board following his resignation as chief executive on 31 March, currently receives US$675 per week as a salary and is covered under a private health-insurance plan.

Claimant Guevoura says “it is unclear […] why Mr Sillerman should receive anything in exchange for his resignation, especially because none of these benefits were contemplated in the RSA [restructuring support agreement] or DIP [debtor-in-possession] credit agreement”.

“It is unclear why Mr Sillerman should receive anything in exchange for his resignation”

It has also asked for clarification on “what Mr Sillerman’s duties as chairman will be going forward in view of the serious questions concerning his pre-petition conduct”.

SFX, the parent company of festival ID&T (Tomorrowland, Mysteryland), Alda Events (Amsterdam Music Festival), Made Event (Electric Zoo) and Stereosonic promoter Totem OneLove (also in administration), declared bankruptcy on 1 February with debts of nearly US$5 million.

 


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