The scion and the radio man

Radio entrepreneur Chris Devine often lets on that his backing comes from Allen & Co. LLC. And why not? Association with the New York investment bank confers immediate status as part of a media elite worthy of Allen & Co. service. The boutique bank's client list is kept under wraps but is known to include such deal-driven moguls as IAC/InterActiveCorp's Barry Diller, News Corp.'s Rupert Murdoch and the Walt Disney Co.'s Bob Iger. These and other tycoons, from old and new media alike, regularly attend Allen & Co.'s invitation-only conference each year in Sun Valley, Idaho.

Don't expect Devine to receive such an invitation. It's not that the 55-year-old New Jersey native lacks the media chops requisite for an invite. An article in Crain's Chicago Business 15 years ago even recognized Devine as "Radio's Sam Zell." The comparison remains inadvertently relevant to this day. Some of Devine's holdings are bankrupt, as is Zell's Tribune Co., and a source familiar with the rest of them concedes they're "teetering that way." Back then, Devine's prowess as an asset flipper was celebrated. The Crain's article cited his $1.1 million purchase of a Buffalo, N.Y., station "when it was playing polkas" in the mid-1980s and its $1.7 million sale 18 months later after a format change to album rock. By 1990, through his Major Broadcasting Co., Devine had increased the stakes of his radio plays by 10-fold. He bought a struggling adult-contemporary station in Major's hometown of Chicago for $19 million and, in 27 months, flipped it as a hard-rock outlet for $32 million.

The Crain's piece also noted the dealmaker's financing came from "a wealthy family of Long Island, N.Y., investors." Devine, who acknowledges dealing with this family since the mid-1980s, confirms in a phone interview that its patriarch is a direct descendant of Allen & Co.'s founder. Because of his public diffidence and his financial acumen, Charlie Allen Jr., who founded the New York investment bank in 1922, came to be known as the "shy Midas of Wall Street." One of his seven children, C. Robert Allen III, worked alongside Charlie as a partner in the business. But after the father's death in 1994, Bob Allen, as C. Robert III prefers to be called, ceded control of the firm to a cousin, Herbert Allen. He then struck out on his own in an effort, as a lawsuit filed on his behalf puts it, "to achieve success in his own right."

Devine was to have been central to that success. In fact, long before ending his commute to Allen & Co.'s Fifth Avenue office (where he still has an office and a secretary of 15 years whom he didn't meet face-to-face until three years ago), Bob Allen invested in Devine-devised enterprises. These investments tallied about $12.5 million within six years of Devine's introduction to the Long Island family identified by Crain's. Then, between 2001 and 2006, they exploded to more than $70 million. Most of the latter was wired to Superior Broadcasting Co., a Chicago-based entity of which Allen owns 90% and Devine 10%. So it was really Allen, rather than Allen & Co., who all along served as Devine's financial sponsor. A radio veteran contends the dissemination of misleading guidance about his source of funding is classic Devine. "It's not true," the veteran says of this and other statements made by the radio entrepreneur he has known for years. "But there are shades of truth to it."

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Any ambiguities permitted by such shadings during Devine's quarter-century relationship with Allen are now coming to light. But they're doing so grudgingly, sporadically, having necessitated a three-year stretch of legal maneuvering expected to extend beyond 2010. One such maneuver has cast Allen, 79, as incapacitated to the degree he needs a guardian. Another reveals that an Allen neighbor in the village of Sands Point on Long Island's north shore -- the inspiration for old-money East Egg in F. Scott Fitzgerald's "The Great Gatsby" -- was so taken by Allen and Devine and their depiction of radio's promise that he personally loaned their Superior joint venture more than $18 million. He has since sued for repayment. What interests radio insiders most, though, is a federal complaint filed in February by an Allen son in the role of guardian.

The complaint alleges that Superior is "merely a shell company" through which Devine and long-time sidekick Bruce Buzil funneled virtually all funds obtained from Allen. More often than not, the complaint continues, these funds were diverted into single-purpose limited liability companies Devine and Buzil owned: "The Devine-Buzil LLCs, in which Allen owned no interest, would use Allen's money for purposes including to purchase a radio station, develop existing station assets, fund operating capital, subsidize technical development or provide management and other services related thereto."

It's not a pretty picture, no matter how one views the suit. If its charges are real, they detail a con man's use of charm, guile and attention to swindle an enfeebled plutocrat; if they're false, they speak of the lengths a patriarch in one of America's richest and most private families will go to deny relatives his wealth. Fortunately, the dilemma inherent throughout the litigation is leavened with testimony and out-of-court testimonials that offer a glimpse into radioland -- a place where relationships still rule, where charisma can trump common sense and where operators have been moving from one new thing to another before and after the Telecommunications Act of 1996 permitted unprecedented consolidation.

Although Allen didn't meet Devine until the mid-1980s, the encounter stirred a sense of déjà vu. "Bob had done a fair amount of business with my grandfather," Devine says, referring to Christopher J. Devine, a bond trader whose firm, C.J. Devine & Co., was merged into Merrill Lynch & Co. a year after his death in 1963. Devine even remembers that despite the intervening years, Allen "made the connection to my grandfather during our first meeting." Allen may also have sensed some yearning for a father figure in the younger Devine, whose parents divorced when he was young and who accompanied his mother to Chicago.

There, for about a decade, Devine's mother was married to chewing-gum heir William Wrigley. But the relationship ended so badly People magazine wrote it up in 1980, claiming in the headline that Joan Fischer Devine Dexheimer Wrigley had "more than doubled her troubles." Although refreshingly frank about her marital woes -- "squabbling over the two most volatile subjects in a marriage: money and sex," the article disclosed -- she was denied alimony. And that was after the filing of 10 suits and countersuits in two states. "A Wisconsin judge declared that Joan's two previous divorces, both quickies obtained in Alabama, were invalid," People reported, "so that her marriage to Bill was illegal from the start." One suspects the marriage was also bereft of a paternal role model, even though Devine provides an upbeat postscript to the People article. After some heavy lawyering by "palimony" attorney Marvin M. Mitchelson, he says, his mother finally received a settlement from Wrigley.

Devine grew up in Chicago, attending Loyola University and letting his interests in radio and running percolate into passions that would inform his career. Aside from radio deals, which propel this story, Devine owns marathons in New Jersey, Palm Beach, Fla., and Salt Lake City. They're housed in a separate entity, Devine Racing LLC, which also bought marathons in Los Angeles and Las Vegas earlier this decade but divested both last year. In the 1990s, through a predecessor company that owned the Chicago marathon for three years, Devine is credited with taking the not-for-profit event and turning it into a for-profit enterprise. He continues to run 10 miles daily himself, which keeps him a trim 140 pounds at 5-foot-10. But his pace presumably lags behind the one that in 1981 enabled him to traverse the country in 76 days.

He's a sports fan as well as a participant, with season tickets to the Utah Jazz and, until recently, the Chicago Cubs. Devine attends the games "entourage-style," says a person who has accompanied him, "always flashing lots of money." For a Jazz game, he often makes a quick round-trip flight after a day in his Chicago office on N. Michigan Avenue to Salt Lake City, where members of his nuclear and extended family live in what a source calls "a sort of compound." Quirks include several showers a day and an aversion not only to socks, even when attired in the immaculate suits he favors, but also to business cards. "He once told me he got fired from his first job on the same day his business cards arrived," explains a source who has known Devine a decade. His self-assurance is such that it "beguiles you," the same source adds, and his facility with financial-speak endeared him early on to industry moneymen. "It's not as if the general manager of KMVN in L.A. obsesses over Chris Devine," the source says. "But to people in private equity and at hedge funds who serve the radio community, he's definitely a household name."

Allen, whose handlers keep him from the press, was also athletic in his day. And though his "health began deteriorating in the 1980s," according to the complaint, he would nonetheless rise every morning "at 4 or 5 to work out," says a source familiar with Allen's routine. The workouts could not have been easy. As a result of osteoporosis and scoliosis, the complaint states, Allen "has suffered several vertebral fractures, radically limiting his mobility." More recently, as part of testimony to determine jurisdiction, Allen's doctor ascribed further debilitation to "progressive kyphosis (hunching over so that constantly his ribs touch his hips.)" He added that he made house calls to examine Allen at least once a month, because the patient wasn't "physically capable of traveling" from his Sands Point estate to the doctor's Fifth Avenue office.

While his health was confining, Allen was no recluse. Sources recall he would happily send his car and driver into New York to retrieve a person in whom he had personal or professional interest. Then, after a meeting would invariably give way to a game of backgammon or a discussion of politics, Allen would have his driver return the visitor. "A lot of times you'd just stay an hour -- from 3 to 4, say," one such guest explains. Another participant in "Bob's afternoon ritual," as he calls it, believes the short visits had nothing to do with Allen's frailty but with an impatience for taking any one topic or activity to the point of diminishing returns. Staying social didn't keep Allen conventional, however. Barely 5-foot-2, and maybe 90 pounds after a meal, he wasn't averse to taking his meetings in a T-shirt, boxer shorts and slippers. And his driveway frequently featured a rich man's oddity like a Cadillac souped up with a Rolls Royce engine.

No one kept in contact with Allen more than Devine. The contacts included visits to the Sands Point estate "on multiple occasions," the complaint states, but consisted mostly of phone calls. The calls went both ways, with Devine dedicating a red phone on his desk just to Allen. "Whenever it rang, it didn't matter what Chris was doing," says a person often in the office. "He'd always pick up." Devine, his voice inflecting pride, elaborates: "For 23 years, I talked to him every day, a minimum of once and more often than not three to five times. I only missed three days. So if I was taking advantage of him, it started when he was about 45."

Devine's comment goes right to the crux: Was the constant communicating between the two men, with an age difference of 24 years, a consequence of an unusually close relationship? Or was it the setup to an exceedingly long con? The complaint's take is unequivocal: "Devine preyed on Allen's desire to prove to his family that Allen, too, could be a very successful businessman. Although Devine appeared to have Allen's interests at heart, the reality was that Devine saw Allen as a mark, someone he could talk into giving him money based solely on his unverified information and personal charm." Then, in Exhibit 1, the complaint displays what many consider a smoking gun: 18 pages of "faxed fraudulent financial statements."

The faxed pages were culled from any number of "one-page weekly cash flow statements," the complaint states, that Devine prepared for Allen between 2001 and 2006. Their ostensible purpose was to update Allen on his 90% interest in his Superior joint venture with Devine. And, to quote from the complaint, they present Superior as "extremely healthy" indeed. Total receivables at times top $70 million, which raises a red flag to anyone conversant with radio economics. Using an industry rule of thumb, receivables of that magnitude would place Superior in the top tier of U.S. radio companies. Cox Radio Inc.'s 86 stations, for example, were carrying only $57 million in receivables before being taken private earlier this year. Yet their industry profile makes Superior seem invisible by comparison.

To Allen, however, the faxed statements represented what the complaint terms "an accurate picture" of Superior. But the truth, it continues, is that they were completely bogus: "In fact, Superior was a shell company with no receivables, no collections, no assets, and no capital other than the funds that Devine and Buzil induced Allen to wire. Instead of funding Superior's acquisition of assets and operations, the money Allen wired for Superior's use had been siphoned elsewhere to finance other ventures of Devine and Buzil."

In an unusual twist to an unusual story, Devine agrees with this take on Superior, notwithstanding the depiction of faxed financials as "entirely false." He admits the company was a shell, at the outset at least, and that funds it received from Allen were diverted to ventures in the names of Devine and Buzil. Only he insists they were diverted to please Allen, not fleece him.

To follow this logic, it helps to know Devine's career. While he has continued to buy and sell radio stations -- an attempt just two years ago to acquire a 46-station group cast off by Clear Channel Communications Inc. fell apart only after he failed to secure financing for the $62 million purchase price -- he has also chased radio's ever-changing sweet spots. In 1994, after anticipated relaxation of single-market ownership constraints by the Federal Communications Commission spiked the prices of big-market stations, Devine switched from flipping these stations to selling them programming. In 1996, having already sold most of his programming assets, he and partner Buzil formed Marathon Media LLC to concentrate on overlooked opportunities in small-to-medium markets. The sweetest spot of all, though, has been the move-in.

A move-in is a radio station relatively close to a large metropolitan market that initially lacks the power to serve it. But this can change with technical upgrades and FCC approval. Such a makeover enables a move-in to reach a much larger audience and, for doing so, charge much higher advertising rates. Its resale value rises commensurately with the cash-flow increase, potentially securing impressive returns on the move-in investment. "Say we go to Willcox, Arizona," Devine says, "and try to buy a station we can move into Tucson. Because the seller knows we see hidden value there, he might make us pay $3 million for something otherwise worth a half-million. But the terminal value -- once we get to Tucson -- is conceivably $6 million."

Even detractors credit Devine with pioneering the move-in and concede its brilliance in flat-to-growing radio markets. "It was revolutionary stuff," a competitor says of the concept, which took off toward the end of the 1990s. "Chris had a couple of big wins as one of the first guys doing it." He was not alone. Another competitor, American Media Services LLC, reports generating net profit of $48 million on revenue of $120 million between 1997 and 2008 on its move-in business. "We had absolutely stunning returns for myself and my partners," chairman and co-founder Ed Seeger says of Charleston, S.C.-based American Media Services. But Seeger also allows that, after the advertising recession and the credit crisis dried up transactional activity a couple of years ago, "business pretty much fell apart."

That still left Devine with ample time to sell and execute move-ins as the cornerstone of Superior's strategy. The idea, he says, was to put three or so potential move-ins into each Devine-Buzil LLC. The complaint cites 22 LLCs and claims they consumed most of the $70.4 million in capital that, in 54 wires between 2000 and 2006, Allen supplied Superior. This capital was then leveraged to achieve scale, with loans from private equity and hedge funds.

Despite their simplicity in theory, move-ins tend to be messy in reality. A station's revenue diminishes or disappears during the two years required for the average technical upgrade. Even then there's no guarantee the upgrade will deliver an audience large enough to justify the undertaking. Devine acknowledges Allen's desire to own and operate major-­market radio stations. And he doesn't seem to mind the complaint's assertion that he "convinced Allen that Superior, upon completion of its move-in projects, would in fact own and operate stations in markets such as New York, Chicago, Las Vegas, Salt Lake City, Phoenix and Denver." But for all of Allen's radio ambitions, Devine says, Superior's financial backer had no tolerance for move-in risk.

In deference to this intolerance, supposedly, Superior functioned as a vehicle that accepted funds wired from Allen and then disseminated the funds to Devine-Buzil LLCs. But the function would have changed, Devine contends, once the "relatively straightforward strategy" that he and Allen had been executing for Superior bore fruit. "The plan for each single-purpose entity was to sell one or two of its stations to pay off its loans," he says. "That would allow the stations we kept to be debt-free. And since they had already been moved into large markets, they'd also be risk-free. That's when we planned to contribute them to Superior. ... Ultimately, Superior was to be the operating company for the stations we kept." The scenario even has an explanation for the case's metaphorical smoking gun. "They were essentially compilations [of all the Devine-Buzil LLCs out there]," Devine says of the faxed financial statements. "I'd put them together in whatever form Bob wanted to see them."

Whether Devine and Buzil would have gotten around to contributing radio stations back to Superior may never be known. What is known is their track record for meeting fiduciary responsibilities could scarcely be worse. Engineering firms retained for move-ins have waited months, even years, for payments in the hundreds of thousands of dollars. One such firm, Reynolds Technical Associates LLC of Birmingham, Ala., dragged Devine and Buzil into federal court last year after the pair defaulted on a $725,000 note executed in September 2005. By the time of the filing, the outstanding balance had ballooned to $1.2 million, including penalties and interest.

Not even runners in Devine's marathons have been spared. The Salt Lake City Tribune published an article just before the city's Devine-owned event in April, reporting that Ethiopian Genna Tufa was still owed $5,000 as the race's male winner in 2008 and that Ethiopian Atalech Asfaw had to wait nearly a year for her $2,500 prize money as the race's female second-place winner. "Ethiopia's average per capita income was $160 a year in 2007, so winning $5,000 in a marathon is often viewed as huge wealth," the newspaper said of payment failures not limited to its hometown but characteristic of Devine Racing marathons elsewhere.

Sources are also aghast about how, as a favor to Devine during a rough credit patch years ago, a devoted programming director agreed to add Devine's wife to his personal American Express account. The arrangement started out satisfactorily, with Devine paying off his wife's balance every month. The timely payments even compelled the director to add Devine himself to the account during another rough patch in early 2008. Barely a week later, however, the director received a call from American Express about an unusual amount of activity. Turns out Devine had used the account for more than $100,000 -- the repayment of which required the director to sell off personal assets while waiting out the nine months or so it took Devine to deliver his share.

Meanwhile, a search of civil cases in the Circuit Court of Cook County identifies Devine or one of his enterprises as a defendant in no fewer than 30 cases, invariably for owing money.

What's also known -- and reinforced by Devine and Buzil's history of fiduciary irresponsibility -- is that Superior's free-and-clear strategy called for a leap of faith by Allen that the funds he wired would at some point deliver the radio stations he coveted. As the complaint notes: "These fund transfers from Superior to the Devine-Buzil LLCs were not memorialized by any kind of written loan agreement nor made with any other indicia of an arm's-length transaction. Moreover, none of the Devine-Buzil LLCs recognizes Superior as a legitimate creditor. Accordingly, if one of the Devine-Buzil LLCs goes into bankruptcy, Superior is not recognized as a creditor or a stakeholder of any kind."

This has already happened at four Devine-Buzil entities -- Millcreek Broadcasting LLC, 3 Point Media-Delta LLC, 3 Point Media-Franklin LLC and 3 Point Media-Utah LLC -- which in February 2007 involuntarily entered Chapter 11. But since there's no paper trail, the complaint says, "neither Superior nor Allen was recognized as a creditor or equity stakeholder." The four entities are still being sold to hedge funds that once provided senior loans.

These designees are also funding "a wind-down budget," to quote from a bankruptcy filing, to preserve going-concern values until they can conduct a sale of their own.

Devine's account of Superior's would-be transition from a shell company to an operating company may be as plausible as any to explain away $70.4 million of Allen's fortune. But it doesn't convince everybody. Detractors claim it oversimplifies the financing of move-ins, especially the way Devine went about them. He may have started with Allen's capital, but he quickly put it to work in ways that benefited himself. "Chris would say, 'OK, I'm going to buy this station for $1 million, but I'm going to finance it for $4 million because that's how much financing I can get,'" says a source familiar with his activities in that era known as covenant-lite. "He'd then pay himself a $2 million fee on the belief that everything would work out once he sold the station for $20 million."

Devine also brought his relationship with Alta Communications Inc., the Boston private equity firm, to the move-in business. They had worked together as operator and sponsor in the mid-1990s, when Devine and Buzil's Marathon Media made a business of trading stations in small-to-medium markets. An early success whetted Alta's appetite for more move-ins, which Devine would satiate, taking up-front fees for his efforts. He has been overheard comparing such fees to being paid "like a ball player," commanding the equivalent of a signing bonus rather than having to wait until the twilight of his career for a big payoff. Getting paid up front, however, wound up lessening Devine's motivation to see any one project through to completion. He simply wanted to start them, more of them, even if it meant overpaying for a station with move-in potential. The setup encouraged overpaying, perversely, by making it easier for Devine to justify a higher fee.

The quest for fees had consequences besides leaving projects budgeted for two years unfinished after four. In addition to an up-front fee, each LLC was to award Devine about 20% of the equity or, in the parlance of private equity, "20% of the ups." The financial sponsor would not only take the other 80% or so of equity but saddle each LLC with a senior subordinated convertible note, or some such security, that paid as much as 15%. The interest expense eventually proved too high a hurdle for Devine to clear, especially with delays adding to each project's duration. That is, while the value of his equity in an LLC remained stalled until its move-ins completed their makeover, Devine's sponsor kept raking in 15% a year. "Chris figured this out after a while," says the source, "and would go around complaining, 'Geez, I'm getting accreted down to nothing.' "

The insight moved Devine to switch from private equity to hedge funds -- notably D.B. Zwirn & Co. LP, Fortress Investment Group LLC and HBK Investments LP -- for capital beyond that supplied by Allen. The hedge funds also commanded high interest rates. But they supplied the capital as debt, leaving equity interests unchanged in the LLCs being financed. Not that this clarified matters. "Chris had money from all sorts of investors," the knowledgeable source says. And his relationships got so complicated it's conceivable that even he lost sight of who owned what. An investment prospect toward the end of his run on move-ins confirms an inability to specify equity stakes. "When I asked him who was in for how much," says a prospect, who declined to participate in the project, "all he would say is, 'Look, I'll give you a 30% return.' It was always a return, never a percentage of ownership."

An FCC report on attributable interests for bankrupt Millcreek Broadcasting, filed in connection with the Allen complaint, indicates the challenge of tracking ownership for a dealmaker moving as swiftly as Devine. Millcreek's common units are dispersed among five holders: Buzil, 29%; former FCC Commissioner Andrew Barrett, 2%; Washington attorney Aaron Shainis, 2%; Chicago attorney Robert Neiman, 16%; and Devine-Buzil joint venture Northland Holding Trust, 51%, for a total of 100%. Preferred units are attributed to four: Buzil, 29.29%; Neiman, 16.65%, Northland, 52.85% and Devine's wife, Dianna, 0.58%, for a total of 99.37%. Never mind the missing 0.63%, the sheer diversity of interests raises questions about the ability of Devine to realize the free-and-clear scenario that he maintains would have made everything right again for Allen by transforming Superior from a shell into an operating company. What would happen, for starters, if one of these holders elected not to sell?

In February 2007, the same month that the Millcreek and the 3 Point Media LLCs entered bankruptcy, the Allen family took action. Allen's wife applied under the Mental Hygiene Law in New York State Supreme Court to have a son appointed financial guardian of her husband. The son received the appointment and, according to a court document, used it to overcome being "effectively stonewalled" by Devine and Buzil when inquiring about Superior. The son had started investigating Superior after learning Allen loaned the company $23 million in September and October 2005. But the investigation got nowhere, the document alleges, in part because Devine persuaded Allen "to countermand his family's request that information concerning Allen's financial affairs be provided to members of his family." The son went on to assume control of Superior in November 2007, orchestrating a coup that snapped his father out of consenting to guardianship. Allen faxed the court administering the arrangement that same month and, as part of an unsuccessful gambit to undo it, called his family's campaign to curb his investments "un-American." Yet the son pressed ahead, his inquiries culminating in the complaint filed against Devine and Buzil in February.

Devine appears to have anticipated the complaint, now bogged down in discovery. A letter he secured from Allen in January 2006 agrees to "indemnify and hold harmless" certain parties, including Devine, and acknowledges his "business practices with Devine are unconventional." Allen also writes: "I have loaned many millions of dollars either to Christopher F. Devine ("Devine") directly or on behalf of some entity or Superior without any traditional documentation. ... Devine has used those funds with my knowledge and approval to fund Superior and purchase in single purpose entities many radio broadcast stations. He is the controlling member of these entities although there are other members. Most of these interests in the various single purpose entities are in the name of Devine personally and pledged to secured lenders to each single purpose entity. "

Devine credits Allen for the indemnification idea, calling it a response to the sudden interest that Allen's son took in Superior in late 2005. "I'll make sure nothing ever happens to you," he recalls Allen promising after Devine objected to the son's snooping. But when Devine pressed for more assurance, expressing fears that more than 20 years of their work together stood to be undermined by the son, Allen offered Devine a chance to write his own protection policy. "Have your lawyer draw something up," Devine remembers Allen saying, "and I'll run it by my attorney before signing it." Hence the letter, which most recently surfaced in August as an exhibit filed by Devine's legal team at Peckar & Abramson PC.

Allen-family attorney Nate Read, an associate at Cohen & Gresser LLP, argues that this head-scratching but obviously key piece of evidence raises more questions than it answers. "You might ask why something like this even exists?" he says. Context must also be considered, Read adds, and in this case it's limiting: "It was a side letter to a deal that never closed." Still, as with so many declarations traceable to Devine, his signed letter from Allen contains at least some truth. Yet it remains to be seen whether this particular shade of truth will allow it to serve as the get-out-of-jail-free card many believe Devine will need.

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