SBS’s Dissident Shareholders Win Time On Foreign Owner Ruling


Four months ago, an attorney representing Spanish Broadcasting System (SBS) notified Media Bureau Chief Michelle Carey that it is out of compliance with foreign ownership restrictions of Section 310(b)(4) of the Communications Act of 1934.

Since then, SBS has been providing the Bureau with a status report on the issue, with the latest one due March 26. An amended Petition for Declaratory Ruling (PDR) is also on the way from SBS, and the company wants affirmation from the Bureau that remedial actions taken to become compliant are sufficient.

Dissident shareholders want their say on the matter — and they’re going to get their chance.

Along with communication from SBS attorney Meredith Senter of D.C. communications practice Lerman Senter PLLC, counsel for SBS’s dissident shareholders sent a letter of their own to Ms. Carey, requesting an extension of time to file a response to the Media Bureau’s letter directing SBS to file its amended PDR by Feb. 26, or file a status report explaining why it was unable to do so.

The Media Bureau reviewed the details of the matter, and determined that — given the record received to date — it would grant an extension of time until no later than April
27 for SBS to file its Amended PDR.

But, SBS has been put on notice that a Notice of Apparent Liability for Forfeiture could be on the way soon.

Discussing the extension, the Bureau notes, “We are mindful that SBS has been on
notice that a violation may exist for at least four months. Thus, we do not expect to grant any more extensions and are prepared to proceed to enforcement action after that point.”

How so? While SBS will not be required to redeem the noncompliant foreign interest or to remedy the non-compliance while its PDR is pending, “it must have a mechanism in place to come into compliance within thirty days following an adverse decision on its PDR.”

The foreign ownership compliance issues first came to light in mid-November, after the Miami-based media company was served with a lawsuit filed in the Delaware Chancery Court by certain holders of its Series B Cumulative Exchangeable Redeemable Preferred Stock — the dissident shareholders.

This case is Cedarview Opportunities Master Fund L.P., et al. vs. Spanish Broadcasting System.

SBS’s next move came on Nov. 28, 2017, when it filed a SEC Form 8-K in which it explained that it notified the dissident shareholders that the company had suspended all of their rights, other than the right to transfer their shares to a U.S. citizen.

SBS said that those shares had been exchanged for “Foreign Share Certificates.” Holders of Foreign Share Certificates had until Dec. 4, 2017, to provide information including citizenship or place of incorporation to SBS.

If the holder of the Foreign Share Certificate refused to provide the requested information, SBS stated in the Form 8-K that it reserved the right to take further action. It added that the suspension of rights generally will only be lifted once the level of foreign ownership in the company falls below 25% and SBS is in compliance with Section 310(b)(4) of the Act.

Then, on Dec. 4, came SBS’s filing of a remedial PDR, seeking permission to exceed foreign ownership limits. Specifically, it wanted the Media Bureau to find that its remedial action suspending the rights of the Series B Shareholders and exchanging their shares for Foreign Share Certificates had brought it into compliance with the Act.

On Dec. 29, 2017, the Commission received a letter filed on behalf of the dissident shareholders asserting their right and intent to participate in this proceeding; SBS asserts that prior to being sued, it did not know the identity of the dissident shareholders.

To little surprise, the dissident shareholders “disagree that their individual or collective interests cause SBS to exceed the 25% benchmark in 310(b)(4),” and that they “intend to
cooperate in ensuring that SBS complies with the FCC’s foreign ownership rules.”

The first PDR filed with the Media Bureau fell short.

“The PDR does not provide enough information for us to proceed with a comprehensive review or to address SBS’s prayer for relief,” Carey said.

Even if the ownership information in the Complaint is accurate, the PDR, inter alia:

  • Does not provide an estimate of the overall level of foreign ownership in SBS
  • Does not identify and give the necessary information regarding the disclosable interest
    holders in SBS, including any disclosable interest holders that may need to be identified
    within the Dissident Shareholders, and the actual voting status of any such disclosable
    interest holders
  • Does not address whether any individuals or entities require specific approval

“Therefore, we require that the PDR be amended before we begin our review,” Carey said.

She reminded SBS that broadcast licensees must self-monitor their compliance with foreign ownership rules, adding, “While it is not clear at what point SBS had or reasonably should have had knowledge of its foreign ownership composition, based on the Dec. 29 letter, SBS should now be in a position to obtain any information that it needs from the dissident shareholders. Given that, it is reasonable to provide further time to SBS to obtain the additional information needed to make a full and complete foreign ownership showing and to amend its PDR.”

Carey expects the dissident shareholders to cooperate with SBS “in order to keep the licensee from breaching the Commission’s rules and the Act.”