Los Angeles Personal Injury Lawyer - Chicago

Cardinal George "Embarrassed" of Obama Speaking at Notre Dame, But Indifferent to Clergy Abuse Matters?

Paul Kiesel — Thu, 02 Apr 2009 15:16:12 GMT

Cardinal Francis George, Chicago's eighth Archbishop, is ripping Notre Dame for inviting President Obama to speak at the school's commencement.

From The Huffington Post:

[. . .] Cardinal Francis George, the archbishop of Chicago, called Obama's planned appearance an "extreme embarrassment" to Catholics while speaking at a recent conference hosted by the archdiocese's Respect Life office in Rosemont, according to a video his remarks on lifesitenews.com.

"[T]he problem is in that you have a Catholic university - the flagship Catholic university - do something that brought extreme embarrassment to many, many people who are Catholic," George told the crowd. "So whatever else is clear, it is clear that Notre Dame didn't understand what it means to be Catholic when they issued this invitation."

The Embarrassing Cardinal

What embarrassment is Cardinal George exactly referencing: Obama's stance on science and fact trumping belief?

The Catholic Church claims that every life is important and worth defending, however, when it comes to children who have been abused by priests, they kind of scoff at the matter and try their best to sweep any "scandal" under their eagle rugs.

In the book, Being Catholic Now by author Kerry Kennedy, Illinois Supreme Court Justice Anne Burke takes Chicago Roman Catholic Archbishop Francis Cardinal George to task for trying to split hairs on the priest sex abuse issue, specifically about how he portrayed a guest in his official residence. The guest, from Delaware, had admitted sexually abusing children, abuse that occurred before he became a priest.

Cardinal George said at the time that no priest in ministry in Chicago had substantiated claims of abuse against minors. He says now that was a true statement. Fr. Kenneth Martin had only been visiting and was not in ministry in Chicago.

Justice Burke says she was furious over what she calls the cardinal’s casual attitude about letting Fr. Martin stay with him. Burke says she found the cardinal’s lack of honesty difficult to deal with.

"I found the cardinal's lack of honesty really difficult to deal with," Burke said in the book. "How do I go on to trust what he says to me? This continues to the present day. He and his brother bishops have been in denial all along." (From Chicago's WBBM 780)

If Cardinal George would like to understand what an "extreme embarrassment" is, all he has to do is look in the mirror or read any one of my blogs on Cardinal Roger Mahony.

Originally posted at InjuryBoard by Paul Kiesel

Ford's ESOP Problems are Beginning to Look a lot like the Tribune Co.'s ESOP Problems

Paul Kiesel — Tue, 06 Jan 2009 15:33:40 GMT

Just before the end of last year, Ford Motor Company moved to dismiss a case brought by participants of Ford's employee stock ownership plan (ESOP) on the ground that participants failed to state a viable claim for relief. Participants claim that the ESOP's investments in Ford company stock were imprudent.

U.S. District Judge Stephen J. Murphy favored the argument made by the ESOP participants. He noted in his opinion that "while ERISA does provide an exemption from diversification rules for ESOPs, it does so while still requiring that the plan sponsor act with prudence when investing in company stock."

Ford had tried arguing that it did not commit a fiduciary breach by continuing to invest in Ford stock because, during the class period, Ford stated that it was not facing "imminent collapse."

The Tribune Company has tried arguing the same thing, however, through mouthpieces in the media and not yet in court. The Tribune Company and Sam Zell have stated that it did not foresee the problems it ran into in 2008 (declining ad revenue, mass layoffs, etc.), but would that have really prevented Mr. Zell from leveraging the purchase of the Tribune Co. with the employee stock ownership plan, if he had this information or even a crystal ball, in late 2007?

In both instances, Ford and Tribune face a massive debt burden and it will be surprising if both make it out the current financial crisis intact (it is probably that both Ford and the Tribune Co. will have to sell of many assets, in order to stay afloat in 2009). Both companies' ESOPs are likely to be "wiped out," and the way the ESOPs were being invested or used was only prudent to a minority of employees (Ford executive compensation, Sam Zell, etc.), who were likely to gain large profits if the Ford and Tribune excelled after implementing their new financial strategies or take minimal losses if the deals being brokered fell flat.

Originally posted at InjuryBoard by Paul Kiesel

Tribune Employees Should Come First in Bankruptcy Court

Paul Kiesel — Fri, 19 Dec 2008 20:51:30 GMT

From MarketWatch.com:

The following is an official statement from Teamsters General President James P. Hoffa. "When billionaire Sam Zell took Tribune private in an overleveraged, doomed deal that swiftly brought down the 161-year-old media giant, the risks involved were placed squarely on the shoulders of Tribune workers. Now, as Tribune's creditors head to bankruptcy court for payback, these workers should go directly to the front of the line. By transferring 100 percent ownership of the company and some $13 billion of debt to an S-Corp Employee Stock Ownership Plan (ESOP) in the buyout, Zell insulated himself from tax responsibilities and mortgaged the future retirement savings of Tribune employees. Despite owning 100 percent of the company, employees were given no voice in the governance of the company or in the plan itself. They've had no say in the terms of their own debt obligations or decisions related to how best to service that debt. Tribune contributions to employee retirement savings for employee-owners changed from a defined benefit plan to a defined contribution plan structured as the ESOP. Employees participating in the ESOP can't diversify their holdings until they reach age 55. The first of the company's contributions to the ESOP was expected to happen in the first quarter, but now -- with the Tribune mired in Chapter 11 bankruptcy -- it's unclear whether that will happen or whether those shares will have any value. Not everyone lost on the deal. Tribune executives made millions, including CEO Dennis FitzSimons, who engineered the deal with Zell and raked in $17.7 million in severance and other payments and cashed in his stock for $23.8 million. Shareholders traded in stock rated deep into junk territory for cash representing a 21 percent premium over the stock price just before the transaction. The banks that lent Tribune the money shared some $47 million in fees. Citigroup and Merrill Lynch who advised Tribune on the deal received $35.8 million and $37 million respectively. And billionaire Zell, who put up only $315 million in the deal, is expected to stand ahead of employees in the creditors' line at bankruptcy court. One thing is for sure -- the Teamsters will remain vigilant during the bankruptcy process to ensure that our members and all Tribune employee interests are advanced." The International Brotherhood of Teamsters represents approximately 1,000 Tribune workers.Originally posted at InjuryBoard by Paul Kiesel

The New Yorker: What was Sam Zell Thinking and Why?

Paul Kiesel — Tue, 16 Dec 2008 20:07:46 GMT

Below is an excellent essay from The New Yorker, which I've broken up into five parts or "five reasons." Each reason provides further evidence as to why Sam Zell should have NEVER brokered the Tribune Company acquisition and also why he should have never made the dubious promises he did to participants of the employee stock ownership program ("ESOP"):

Reason #1 - When the Tribune Company announced that it was filing for bankruptcy, last Monday, Sam Zell, the man who bought the company a year ago, for $8.2 billion, said that its problems were the result of a “perfect storm.” You take readers and advertisers who were already migrating away from print, and add a steep recession, and you’ve got serious trouble. What Zell failed to mention was that his acquisition of the company had buried it beneath such a heavy pile of debt that any storm at all would likely have sunk it. But although Zell was making excuses for his own mismanagement, the perfect storm is real enough, and it is threatening to destroy newspapers as we know them. Layoffs and buyouts have become routine. The Miami Herald and the San Diego Union-Tribune are reportedly on the selling block, while lawmakers in Connecticut are trying to keep two newspapers there afloat. Even the New York Times Company has slashed its dividend and announced that it would borrow against its headquarters to avoid cash-flow problems.

Reason # 2 - There’s no mystery as to the source of all the trouble: advertising revenue has dried up. In the third quarter alone, it dropped eighteen per cent, or almost two billion dollars, from last year. For most of the past decade, newspaper companies had profit margins that were the envy of other industries. This year, they have been happy just to stay in the black. Many traditional advertisers, like big department stores, are struggling, and the bursting of the housing bubble has devastated real-estate advertising. Even online ads, which were supposed to rescue the business, have declined lately, and they are, in any case, nowhere near as lucrative as their print counterparts. Papers’ attempts to deal with the new environment by cutting costs haven’t helped: trimming staff and reducing coverage make newspapers less appealing to readers and advertisers. It may be no coincidence that papers that have avoided the steepest cutbacks, like the Wall Street Journal and USA Today, have done a better job of holding onto readers.

Reason # 3 - Newspaper readership has been slowly dropping for decades—as a percentage of the population, newspapers have about half as many subscribers as they did four decades ago—but the Internet helped turn that slow puncture into a blowout. Papers now seem to be the equivalent of the railroads at the start of the twentieth century—a once-great business eclipsed by a new technology. In a famous 1960 article called “Marketing Myopia,” Theodore Levitt held up the railroads as a quintessential example of companies’ inability to adapt to changing circumstances. Levitt argued that a focus on products rather than on customers led the companies to misunderstand their core business. Had the bosses realized that they were in the transportation business, rather than the railroad business, they could have moved into trucking and air transport, rather than letting other companies dominate. By extension, many argue that if newspapers had understood they were in the information business, rather than the print business, they would have adapted more quickly and more successfully to the Net.

Reason #4 -There’s some truth to this. Local papers could have been more aggressive in leveraging their brand names to dominate the market for online classifieds, instead of letting Craigslist usurp that market. And while the flood of online information has made the job of aggregation and filtering tremendously valuable, none of the important aggregation sites, to say nothing of Google News, are run by a paper. Even now, papers often display a “not invented here” mentality, treating their sites as walled gardens, devoid of links to other news outlets. From a print perspective, that’s understandable: why would you advertise good work that’s being done elsewhere? But it’s an approach that makes no sense on the Web.

Reason #5 - These mistakes have been undeniably costly, but they’re not the whole story. The peculiar fact about the current crisis is that even as big papers have become less profitable they’ve arguably become more popular. The blogosphere, much of which piggybacks on traditional journalism’s content, has magnified the reach of newspapers, and although papers now face far more scrutiny, this is a kind of backhanded compliment to their continued relevance. Usually, when an industry runs into the kind of trouble that Levitt was talking about, it’s because people are abandoning its products. But people don’t use the Times less than they did a decade ago. They use it more. The difference is that today they don’t have to pay for it. The real problem for newspapers, in other words, isn’t the Internet; it’s us. We want access to everything, we want it now, and we want it for free. That’s a consumer’s dream, but eventually it’s going to collide with reality: if newspapers’ profits vanish, so will their product.

Does that mean newspapers are doomed? Not necessarily. There are many possible futures one can imagine for them, from becoming foundation-run nonprofits to relying on reader donations to that old standby the deep-pocketed patron. It’s even possible that a few papers will be able to earn enough money online to make the traditional ad-supported strategy work. But it would not be shocking if, sometime soon, there were big American cities that had no local newspaper; more important, we’re almost sure to see a sharp decline in the volume and variety of content that newspapers collectively produce. For a while now, readers have had the best of both worlds: all the benefits of the old, high-profit regime—intensive reporting, experienced editors, and so on—and the low costs of the new one. But that situation can’t last. Soon enough, we’re going to start getting what we pay for, and we may find out just how little that is.

Originally posted at InjuryBoard by Paul Kiesel

Zell to Chicago Tribune: Employee Owners Could be "Wiped Out"

Paul Kiesel — Mon, 15 Dec 2008 16:05:28 GMT

Shortly after filing for bankruptcy protection, Sam Zell told the Chicago Tribune, last week, that he believed the Tribune Company could emerge from the Chapter 11 process stronger and more competitive. He did not provide any concrete facts for this assertion.

Also, he chose not to provide specifics for how he plans on restructuring a company that is over-burdened with a debt load almost nine times its cash flow.

Zell, regarded as a smart and cunning businessman (at least before 2008), brokered the acquisition of the Tribune Co. by investing a little over $300 million of his own money and then leveraged the remaining balance with the Tribune Co.'s employee stock ownership program (ESOP). The structuring of this deal provided Mr. Zell the opportunity, if his newly tax-incentive purchase of the Tribune Co. panned out to be financially lucrative in the following years (as Zell presented it to ESOP participants shortly after the transaction was complete), of reaping a great reward without risking much personally.

For instance, here is an example of how the deal was immediately beneficial to Mr. Zell:

The executive director of the National Center for Employee Ownership published an analysis of the Tribune Company’s ESOP in 2007 which included the following: “In the Tribune case, the ESOP will borrow money from the company. Regardless of how the plan acquires stock, company contributions to the trust are tax-deductible, within certain limits. So in this case, the company is able to use the ESOP to borrow money and repay it in pretax dollars, deducting both principal and interest. This is one of the key tax benefits that the many articles on this transaction are referencing.”

But because Mr. Zell, a real-estate magnate, not a media magnate, had a myopic strategy and vision for attempting to steer a sagging portfolio of print and broadcast media's ad dollars upwards (he assumed cutting overhead costs, jobs, and ramping up more advertising -- Tribune newspapers consist of 50 percent advertising and 50 percent content since September -- would erase some of the red ink on the Tribune Co.'s balance sheet), he is now caught in the "perfect storm," as he lightly phrased his economic quagmire to the Chicago Tribune, on December 8.

Regardless of the Tribune Co.'s hope that filing for Chapter 11 will bring a more promising future, the company's ESOP, the employee stock ownership program that purchased the majority of Tribune Co. shares, in December 2007, will likely lose most if not all of the value of its individual employees' holdings.

Unfortunately for the ESOP participants, they will have to stand in the back of the line in bankruptcy court to recoup their money, as creditors. And by the time it's their turn to be paid, there won't be much left to receive.

Originally posted at InjuryBoard by Paul Kiesel

BusinessWeek: Tribune Bankruptcy Snares Employees

Paul Kiesel — Thu, 11 Dec 2008 19:05:48 GMT

Below is a BusinessWeek article describing the myopic vision Sam Zell had when purchasing the Tribune Co. with little of his money and saddling the Employee Stock Ownership Program (ESOP) with almost $13 billion in debt. However, maybe this was Mr. Zell's plan all along... I imagine he didn't become the billionaire he is today accidentally.

THE GRAVE DANCER

If there is one thing Sam Zell foresaw correctly, it is this: The day after Zell announced he was buying Tribune for more than $8 billion, the real estate tycoon told Chicago Tribune reporters the deal would not change his lifestyle no matter what happened. But, he said, "it's likely to change yours."

How right he was. Just one year after Zell bought the company (BusinessWeek, 7/30/08), Tribune announced on Dec. 8 that it is filing for bankruptcy. That means Zell could lose a small fraction of his estimated $5 billion fortune. The reason: The man who likes to call himself "the grave dancer" put very little of his own skin in the game. Instead, employees of the Tribune properties will bear the brunt of the pain, as they technically own the company and hold its $12.9 billion in debt. Tribune reported $7.6 billion in assets.

Tribune comprises eight newspapers, including the Chicago Tribune, Los Angeles Times, and Baltimore Sun; a 31% share of Food Network; two dozen TV stations, including outlets in the three biggest U.S. markets; and the Chicago Cubs baseball team. The Cubs franchise was not part of the bankruptcy filing. While Tribune officials declined to comment on the decision to keep the Cubs franchise separate, there are provisions in a Major League Baseball franchise agreement that could come into play in a bankruptcy. If a Major League Baseball franchise is insolvent, the commissioner has the power to step in to operate the team, for instance, and ultimately sell it.

ESOP Used to Borrow

Tribune's bankruptcy will be complicated. For starters, figuring out the value of Tribune in bankruptcy could be problematic. Every day brings a slew of steadily worsening statistics on ad revenue and circulation, pummeling newspaper valuations. On top of that, Zell used complex financing schemes predicated on tax advantages in structuring his deal. Those arrangements now raise thorny questions.

One of the trickiest issues will be how to handle a financing scheme Zell used to buy Tribune that relied on a tax-exempt employee stock ownership plan, known as an ESOP. Although employees had no say over how the ESOP was used, Tribune's board approved Zell's bid, which used the ESOP as a vehicle through which he borrowed hundreds of millions of dollars to tax-efficiently fund the transaction. The scheme allowed Zell to pony up just $315 million of his own cash to wrest control of the company and made employees technically Tribune's owners.

But ownership came at a price: Tribune cut back its 401(k) contributions and committed to use a portion of its revenues to pay down the hundreds of millions in debt that a trust set up for the ESOP used to buy Tribune shares, according to employee stock owner plan expert Corey Rosen. "It was like a mortgage that you use to buy a house with no money down," says Rosen, who wrote a report that goes into detail on Tribune's ESOP arrangements.

Tax Gains at Issue

Early on in the deal, Zell tried to motivate his troops by telling them the financing scheme would result in tax gains that would give Tribune a big advantage and could one day make employees rich. "This business lends itself to ESOPs because you have a lot of people, at least in theory, who are intelligent," he said in the Chicago Tribune interview in April 2007.

Now, the ESOP's equity stakes will likely be wiped out, and the handling of the tax gains will likely become an issue in the bankruptcy restructuring. "If a company goes bankrupt, the equity runs the risk of not being worth much," says Standard & Poor's analyst Emile Courtney. "They will probably lose everything" in the ESOP, predicts tax expert Robert Willens, who has closely studied the Tribune deal.

In a Dec. 8 note to Tribune employees, Zell still addressed them as "partners." He said their payroll, benefits, and 401(k)s would not be affected by the filing. As for the ESOP, Zell said, "it is part of the ownership structure, so its value and role long term will be determined in the restructuring. We believe the structure is a valuable asset to the company and that there are strong reasons to preserve it."

Silver Lining for Employees

But the ESOP could raise governance issues about who should be in charge of reorganizing the company. As part of his financing scheme, Zell also obtained a warrant to buy 43% of the company. So, there's a question if it is "the ESOP trustees who preserve value for the ESOP itself? Or if it is Zell negotiating to protect his note?" says one bankruptcy expert who asked not to be named.

The bright side may be that Tribune employees didn't have a lot of time to put much money toward ESOP contributions. "In a weird way, the employees are better off that the company crashed today instead of seven years from now," says a banker familiar with the deal, who asked not to be named.

Originally posted at InjuryBoard by Paul Kiesel

Sam Zell the Grave Dancer: A Plan to Devalue the Tribune Co. in a Plot to Take Over Its Assets

Paul Kiesel — Thu, 11 Dec 2008 16:55:01 GMT

A letter was written by Sam Zell to Tribune Company employees earlier this year discussing the value and intelligence behind the Employee Stock Ownership Program's (ESOP) private transaction of Tribune Company assets in December 2007.

In the letter titled "Call Me Sam," Mr. Zell falsely addresses the reality of the acquisition of the Tribune Company by its employees, and distorts the truth surrounding the $13 billion of debt that was increased due to the transaction:

Dear Partners,

When we close the going-private transaction in December, our total debt increased to nearly $13 billion. I put $315 million behind that debt, which was underwritten based on Tribune's historical performance -- a level of performance, incidentally, that I believe we can surpass. The employees -- you -- then acquired 100 percent of the company. I acquired an option buy 40 percent of the company for $500 to $600 million within the next 15 years.

Let me clarify the most common misperception I've heard on the ESOP: Employees do not contribute any money toward the plan. What would have been discretionary company contributions to 401(k) accounts going forward are what's financing the ESOP.

Over the next 10 years, if we perform to the level of our expectations, we will have paid down a significant amount of debt. Our projections assume cash flows in line with 2007 and expectations that newspaper revenues will decline and that broadcast and interactive revenues will increase.

In the end, you and I, together, will own a collection of assets worth billions of dollars, the majority of which will be allocated to employees.

You will still have a 401(k) account that you may elect to fund and the Cash Balance Plan. You will not have invested one nickel in the ESOP.

In all my years of doing deals, this is one of the best risk/reward ratios I've ever seen [. . .]

Sam Zell, Letter to Tribune Employees (2008)

The only person who saw the risk-to-reward ratio as being the "best I've ever seen" was Sam Zell, because he was the primary beneficiary of the transaction. He controls a company that is owned by its employees, he has since received millions in tax breaks as he transformed the company from a C-corporation to an S-corporation. Financially speaking, he has little at stake, and much to gain. He's basically gambling with someone else's money, in this case, a company's worth of someone else's money.

The Tribune Co. is worth much less than the ESOP paid for it and as Mr. Zell continues to poorly manage the Tribune Companies' assets (Los Angeles Times, Chicago Tribune, Newsday, etc., etc.; i.e. compare 2006, 2007 and published quarterly revenues from 2008 to see the financial declivity of the Tribune), he only hurts the people who actually own the company: The employees.

Originally posted at InjuryBoard by Paul Kiesel

Tribune Company Under Investigation for Potential Violations Involving the Company's Employee Stock Ownership Plan

Paul Kiesel — Wed, 10 Dec 2008 21:47:19 GMT

An investigation is currently being conducted to ascertain whether the Tribune Company and the Employee Stock Ownership Plan's ("ESOP") fiduciaries may have breached their fiduciary duties of loyalty and prudence to the Plan's participants.

A breach may have occurred if the fiduciaries failed to prudently manage the Plan's assets, by among other things, causing the ESOP to purchase overvalued Company stock when the Company was overleveraged, over-encumbering the ESOP with debt, and continuing to purchase and/or hold Company stock after doing so was no longer prudent given the financial condition of the Company at the later more perilous purchase time.

A breach may have also occurred if the fiduciaries withheld or concealed material information from the Plan's participants with respect to the Company's business, financial results, and operations.

If you are a member of the Tribune Company's ESOP and would like to discuss this matter further or provide information relevant to the investigation that is taking place, please feel free to contact Mr. Paul R. Kiesel or Ms. Helen Zukin at 310-854-4444 or e-mail them by clicking on their names.

Originally posted at InjuryBoard by Paul Kiesel