Underwriting section of FJC loan contract drives Pacifica’s urgency for an advertising policy

A puzzle of Pacifica proceedings in recent months is why this focus on underwriting, the needless euphemism for advertising? Longstanding Pacifica discursive culture is officially vehemently anti-advertising, whilst the practical culture accepts it, even promotes it as an invaluable income stream. Hypocrisy in action. Again, what’s new?

The late departed ED Maxie Jackson, & various directors, spoke at PNB meetings explaining the need for Pacifica to have, supposedly for the first time, a written advertising policy. Individual stations, & their producers, could take up the opportunities circumscribed by the policy, or not. The policy would simply be used to regulate what is already happening within the network.

This was always presented as a necessary first step in preventing, or ending, violations of rules held dear by the Federal Communications Commission (FCC) & the Corporation for Public Broadcasting (CPB). But that’s not new – unlike something more pressing: the loan contract with the Foundation for the Jewish Community (FJC).

Instead of Pacifica giving FJC money just for the privilege of paying FJC interest, for having a loan in the first place, what’s known in the trade as an origination fee, an expression of the powerlessness of the borrower, FJC has required Pacifica to enter into an advertising contract (pages 6-7 of the FJC loan contract). Pacifica has accepted contractually that the advertising contract is not for mutual benefit but for FJC’s benefit, what in Legalese is termed its consideration: “the Underwriting Agreement [is] for the benefit of Lender, as amended from time-to-time” (the introductory list of the contract’s definitions, Section 1.1(30); p. 4). The other pages in the loan contract explicitly on the topic of advertising are 6-7 & 25-7, & these will now be considered. https://mega.nz/#F!PloCiSqJ!9rLejSkttE7gCVCCq3q86g?b0IBlaiR (no need to download the PDF: click the three horizontal dots, then ‘preview’)

It is not known publicly why on earth FJC has done this. [Please see the postscript, where a reason is given.] It’s particularly odd because FJC is the manager of the charitable funds of donors, towards whom FJC is obviously in a relationship of trust, exercising a fiduciary responsibility. So rather than maximising the investment income of the donors’ accounts, by dividing the origination fee amongst them, FJC has pursued its own organisational goal.

Legally the accounts are not owned by the donors but by FJC. What a donor has is influence, the right to recommend to FJC the recipients of FJC money. That’s the law, the theory. In practice, for FJC to maintain, even increase its market share, it needs a good reputation, & that would be harmed if donors told others that their recommendations had not been carried out. So, as so often, capitalist law is one thing, capitalist life is another.

FJC has made Pacifica take advertising, $37 000-worth, 1% of the borrowed money, the $3.7m: “PACIFICA is obliged to provide underwriting credits on its Stations in the amount of 1% of the Loan Amount (the ‘Underwriting Credits’) to facilitate the placement of underwriting on the Stations.” (the FJC-Pacifica loan contract, Exhibit B: Underwriting Agreement, original capitalisation & bold; p. 25)

This is how it works. FJC receives no money; Pacifica receives no money, but bears the cost of the exercise. The exercise is Pacifica carrying adverts. An advertising broker, F. Y. Eye, Inc. (“a not-for-profit organization”, apparently – p. 25), acts as FJC’s agent, & is reimbursed for its expenses (“at Borrower’s cost and expense” – Sec. 3.1; p. 6), & the rest goes as credits to advertisers, “non-profit organizations mutually agreed upon by Borrower and Lender” (p. 7). But this doesn’t start as soon as the loan begins: “credits will be provided as Borrower develops the capacity over the term of the Loan. At such time, Borrower and Lender shall enter into an Underwriting Agreement substantially in the form of Exhibit B attached hereto [pp. 25-7].” (p. 7). This time is when “PACIFICA establishes an underwriting program at its radio stations.” (p. 25, original capitalisation).

To repeat: Pacifica contracted with FJC on 2Apr2018, for the sole benefit of FJC, to bring advertising to the radio stations. The PNB agreed to this without public discussion or debate on advertising. The PNB went behind the backs of the listeners, the members, the staff. The PNB deceived them all. It committed a crime.

Furthermore, but not surprisingly, this was not disclosed in the spurious loan summary distributed Sa16June2018 by then Chair Nancy Sorden, on the authority of the Pacifica National Board. This is what it said on the topic, in full:

“[a]n initial draft of the Underwriting Agreement would have required Pacifica, in lieu of an origination fee to LENDER, to pay 1% of the loan proceeds to a non-profit organization called F.Y. Eye, Inc. (FYEYE). That organization would, in turn, have made grants to non-profits who would then purchase underwriting credits to be aired on Pacifica stations. A revised version of the Underwriting Agreement does not require an initial set aside by Pacifica, but reserves LENDER’s right to propose underwriting credits for non-profits ‘as Pacifica develops the capacity over the term of the Loan.'” [original capitalisation, p. 3; https://mega.nz/#!vyBjgaSC!UQVkLUfLfLXuZHjQguWWaQSuJ2HAuEPJ0fK74_IGlvg (no need to download the PDF: click the magnifying glass symbol)]

No, this isn’t what the contract says. It doesn’t speak of “the LENDER’s right to propose underwriting credits for non-profits ‘as Pacifica develops the capacity over the term of the Loan'” (the spurious summary, my italics & bold), a slippery word because its implied meaning is simply to do with possibility, rather than the right to have advertising content as satisfaction of consideration, for having foregone an origination fee. The following is what’s in the contract signed by Pacifica ED Tom Livingston & FJC President Lorin Silverman: “the Underwriting Agreement [is] for the benefit of Lender” (p. 4), & “there is no origination fee due to Lender. However, in lieu thereof, the Borrower agrees that Lender will receive underwriting credits” (pp. 6-7, my italics & bold). Will, not propose. The matter is one of consideration & its satisfaction. It’s not plausible to believe that two experienced businesspeople would each sign a contract that doesn’t exist. Within the PNB, the deceivers are also cowards.


Postscript . . . F.Y. Eye, Inc. – a corporation founded by its president, Lorin Silverman . . . yes, the President & Treasurer of FJC, and President & Treasurer of the Marty & Dorothy Silverman Foundation, which buys FJC loans that are “potentially impaired”, not even in default (FJC policy, disclosed in any of their auditor’s reports & IRS form 990’s – the latest: pp. 10-11, pp. 12-13 of the PDF, http://fjc.org/uploads/user-uploads/image/FJC%203-31-18%20FINAL.pdf; & Schedule O, p. 90 of the PDF, http://fjc.org/uploads/user-uploads/image/file/990%20FY17%20-%20For%20Distribution.pdf). And, yes, it was Lorin’s signature that lent the money to Pacifica. https://www.fyeye.org/about-us/our-team/