Kushner sued over disputed funds from Register purchase

Former shareholders in Freedom Communications allege that buyer Aaron Kushner has wrongly held back $17 million from the 2012 purchase deal that put him in charge of the Orange County Register. They have sued in Delaware court, according to the LA Times, which says that Kushner contends the funds are part of making good on fraudulent financial information provided to him when he bought the OC paper and its parent company. Kushner's position is that he faces $62.3 million in unexpected financial liabilities because the sellers understated problems such as the level of unfunded pension liabilities on the books. While the facts are yet to be adjudicated, it's being taken as another piece of evidence that Kushner's foray into the newspaper business at the Register — which has so far featured much hiring and rejection of conventional wisdom to put content free on the internet — is so far based on an unproven financial model. From the LAT story:

At a time when other newspapers are cutting back, he has more than doubled editorial staffing at the Register, invested in new sections and added new regional editions. Kushner has said he's put as much as $15 million in additional cash in the business. In August, he launched a new daily newspaper, the Long Beach Register. Last month Freedom acquired the Riverside Press Enterprise for $27.25 million.

The effort has earned Kushner plaudits from media critics, who have called him a visionary. But little is known about how financially successful the investment has been, and there have been some indications that cash is tight.

The company ceased making contributions to employees' 401(k) retirement plans last January, and in August, Kushner told employees that it had failed to meet performance goals in the second quarter. The Orange County Register set up an Internet pay wall that has significantly reduced digital revenue. Meanwhile, the paper's daily print circulation has declined slightly.

Kushner and Freedom have become caught up in a growing number of legal entanglements.

An outside advisor retained by Kushner to advise on attempted purchases of the Boston Globe and other media groups sued in New York last year, alleging he's owed nearly $14 million.

And last month, two former Freedom executives filed suit in Los Angeles County Superior Court demanding $4.5 million in severance pay. Both those cases are still pending.

Here is the Wall Street Journal's coverage of the suit, filed by debt investor Angelo Gordon. Kushner says the Register is about where he wants it to be financially, though it has not been profitable so far in 2013.

File photo: Register headquarters