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THE FINAL RECKONING

July 14, 2021

After this post I received a number of links to some blogs by other authors who are highly critical of John Branca (“the greedy backstabber”) with a request to comment on them.

Well, comment I will not, but verify I will.

Fortunately now we have every means of verification as lots of true and correct information is provided by 1) the Tax Court Memo of May 3, 2021 regarding the Estate’s prevalence over the IRS and 2) the depositions in Wade Robson’s case (recently thrown out by another judge) where people gave their testimony under oath, including John Branca who was deposed by Robson’s lawyer Finaldi on October 18, 2017.

Both sources in combination with what we knew before will give us a unique chance to finally get to the bottom of things which are a matter of fierce controversy within the MJ fan community even today. 

~

The first thing doubted by Branca’s critics is that he really had the right to 5% of the Sony/ATV catalog. 

John Branca claims that he did, or rather his firm did as the money didn’t go directly into his pocket – after all, he wasn’t the only one in his law firm to work for Michael Jackson.

Branca’s 5% stake in the Sony/ATV catalog was mentioned in so many documents that doubting it is ridiculous, but since some people do, let’s start from the beginning again.

Finaldi asked Branca about his ownership of 5% in the Sony/ATV catalog and this is what Branca replied under oath (pp.37-38 of the transcript ):

Q   You’ve never had an ownership stake in any of his companies, correct?

A   Any of his companies?

Q  Yes.

A. [ ] I had a carried interest in Sony ATV but not MJJ Productions, not MJJ Ventures. [ ] In Michael’s half of the company.

Q. Okay. So, essentially, you got a percentage of what Michael got?

A. Correct.

Q. And is it true that throughout your career of representing Michael Jackson, that’s kind of how your compensation worked, it was a percentage basis?

A.  ………….[the answer is blotted out, but we know that it was 5%]

Q. Initially?

A. And then it was a percentage on certain projects but   everything.

Q. What types of projects did you get a percentage of?

A. Well, it was – from time to time ….[blotted out]. And then later on when we merged Sony and ATV, he gave us 5 percent on his half of the company but that was generally the situations where we had a percentage.

Q. Okay. So your positions on — with his companies, whether as a director or an officer, were those non-paid positions?

A  Correct.

So first the pay to Branca’s firm came in the form of a percentage on only some of Michael’s projects, then it covered “everything” (all Michael’s proceeds) and later, after a break & resumption of their cooperation, it turned into a 5% stake in the Sony/ATV catalog plus 5% of the revenue generated by it (the latter, as I get it, was the equivalent of the earlier percentage received by Branca’s firm).

In this rather long excerpt Taraborrelli describes the circumstances that accompanied those deals. Besides Branca please pay attention to the other players around Michael at that time.

“He did receive five per cent of the profit on the Victory and Bad outs. In contrast, though, Mickey Rudin, Frank Sinatra’s attorney for years, received ten per cent of Sinatra’s tours.[ ]

In the spring of 1990, John and Michael had a meeting during which John said he felt the time had come for him to share in the equity in Jackson’s publishing company.”

“Michael told John he would consider the proposal. Then, he decided to talk the matter over with David Geffen.

At this same time, David Geffen was trying to convince Michael that he should break his CBS Records deal by utilizing a contract loophole.[ ]  Though Michael’s contract with CBS had expired, he still owed four more albums to the label. After the seven-year duration, Michael could probably have left CBS Records. However, it could sue him for damages, the amount of which would be based on the estimated loss of profits from the albums he did not deliver. CBS Records could have mounted a huge lawsuit against Michael. David was willing to overlook the possible litigation (“I’ll all work itself out,” he said). However John Branca was not willing to do so, and he was the one representing Michael, not David.[ ]

Industry observers felt that David was trying to lure Michael away from CBS so that he could sign him to his own label. [ ]

When John and David engaged in a heated argument over the logic of trying to extricate Michael from his recording contract with the CBS Records, John told him to mind his own business. David hung up on him. David then telephoned Michael and, apparently, tried to sour him on John Branca by saying that John had been uncooperative, and that the reason Michael didn’t have ‘a good deal at CBS’ was because of John’s close relationship with the company president, Walter Yetnikoff.  Michael allowed himself to be swayed by David.

A couple of days after John’s difficult conversation with David Geffen, John met with Michael. Michael barely listened to what John said and he seemed hostile towards him. The two engaged in a heated discussion about CBS and whether or not Michael was obliged to record for them. The meeting did not go well. When it ended, John went back to his office in Century City. The next day, he received a letter by special messenger from Michael’s new accountant, Richard Sherman, whom John had recently hired: John’s services were no longer required by Michael Jackson.’ [ ]

Michael was sorry to lose John Branca, but he didn’t get sentimental about the loss. The way he looked at it, John made a fortune doing what he loved to do, representing Michael in major show-business deals. When it was over, it was over. Michael swiftly replaced him with three seasoned law veterans: Bert Fields (for litigation), Alan Grubman (for negotiations with CBS), and Lee Phillips (for music publishing) – all closely associated with David Geffen.

The above took place in the summer of 1990.

Soon thereafter Michael signed a new deal with CBS Records, now known as Sony Corporation and headed by Tommy Mottola instead of Yetnikoff. During this period Branca did not have a stake in Michael Jackson’s assets yet.

When the 1993 crisis broke out Michael approached Branca again. This was a troubled time not only due to Jordan Chandler’s allegations but also because of the abrupt termination of the Dangerous tour and the lawsuit filed by the tour promoter Marcel Avram for $20 million in damages plus punitive damages.

The LA Times said that Jackson was hit with a $20-million lawsuit:

Jackson Hit With $20-Million Lawsuit : Pop music: The pop star faces a fraud and breach-of-contract claim by the promoter of his canceled ‘Dangerous’ tour. The singer performed only 24 of the 43 shows.

The sum initially reported as $20mln later turned into a $40 million claim, possibly through the addition of punitive damages to the initial complaint.

In 1994, the promotion firm sued Jackson for more than $40 million, after he canceled a total of 19 dates of the Dangerous tour. The matter was settled out of court.

MJ settled with Marcel Avram for an undisclosed sum. The settlement could easily be $20 million which is how this case is now occasionally mentioned here and there.

The $15mln settlement in the Chandler civil case could be paid by the insurance, at least partially, as they did offer to pay (we even have documented proof of it), but the exact terms of the agreement are unknown to us, so let us assume that at least part of the settlement was paid by MJ.

Actually from the beginning of Chandler’s claims Michael was set to fight them in criminal court and considered it the worst mistake of his life that he listened to his advisors and allowed himself to give in to the Chandlers’ extortion.

Whatever, in order to cover those sums Michael’s then lawyers recommended him to sell the Beatles catalog, but Michael sought John Branca’s advice and Branca, exclaiming “Are you crazy?” arranged a lucrative deal with Sony instead. It was a merger of both parties’ music catalogs into a Sony/ATV joint venture which brought Michael $115 million in equalizing payment and a promise from Sony to pay the additional $32.5 million over the next five years.  The “equalizing payment” was made because the parties agreed that Jackson was contributing assets worth more than Sony.

So what initially looked like a financial impasse later turned into a blessing, and at it was at this point that Branca asked for 5% in Michael’s half of the catalog again and Michael agreed.

When Finaldi asked Branca about his on and off work for Michael Jackson Branca did not mention the scuffle he had with Geffen over the danger of a CBS Records lawsuit in case Michael left them. 

However we know that there was ill feeling between the two, as well as the fact that soon thereafter Branca was ousted by Geffen, same as Frank Dileo and Walter Yetnikoff before that, all of whom were replaced with people of Geffen’s choice.

  • “Geffen had never had much love for Branca”( The Hit Men by Fredric Dannen)

The Wrap series also said:

  • “With Geffen [ ] you were either with him or not. Branca was not. Michael, in fact, had welcomed Geffen into his life initially,though he’d later turn on him viciously. For years, Geffen had served on an informal committee advising Jackson on investments.”

Here is an excerpt from Branca’s deposition: (p.49)

Q.         Okay. And so you were hired by him in 1980 you worked as his attorney until when was the first time that you stopped?

A         It was either late ’89 or early ’90, somewhere in that period.

Q          And what was the reason for that? The —

A           Michael made a decision to let us go.

Q          Was there any kind of event or something that, you know, transpired that you know of or was it just —

A           No.

Q          All right. And then when you were brought back on, it was my understanding, in ’93 or so, do you know —

         Late ’93. Yeah, ’93.

Q           Do you know what transpired to bring that about?

A            I think there were a couple of things. There was some conversation Michael was having with his music publishing lawyer about possibly selling part of his interest in ATV music publishing. I think that there were these Chandler allegations that Michael was quite disturbed about. [ ]

Q            Now, the second time period that you represented him would cover, essentially, ’93 through about 2005; is that right?

A            Correct. Although there was a short period of time somewhere in the ’90s where I was technically not representing him.

Q            Do you know what that period was? Was there an album he was working on or –

A            God. It was probably ’99 or 2000, around there. I don’t really recall.

Q            All right. So –

A            And I would say also probably after 2002, I was hardly involved, I didn’t have much contact with him even though, technically, I remained on the legal team until around 2005 or 2006.

There is a lot to say about these Branca’s comings and goings, and the fact that during the second period with Michael he was indeed removed from any decision-making while MJ’s business was managed by characters like Myung Ho Lee, Dieter Wiesner and Ronald Konitzer to name only a few.

But what stands out to me now is that the recommendation to sell Michael’s rights to the Beatles catalog came from his then music publishing lawyer Lee Phillips who was part of Geffen’s team.

It is obvious that if Michael had followed that advice, he would have lost his most valuable asset already in mid-1990s and would have gone bankrupt in no time, so it looks like Michael’s then team of advisors didn’t have his best interests at heart.

The merger with Sony took place in November 1995. Its details are described in the recent Tax Court judge memo.

From The Tax Court Memo of May 3, 2021:

That year — 1995 — also marked the beginning of the financial pressures that would ultimately come close to crushing Jackson towards the end of his life. Several of his advisers recommended that he sell his ATV catalog to Sony. Jackson agreed in part and sent Branca to negotiate a merger of the ATV music catalog with Sony’s music-publishing business. In November 1995 he signed an agreement with Sony Music Publishing Company and its affiliates to form Sony/ATV Music Publishing Company, LLC (Sony/ATV).

Jackson and Sony each received half of Sony/ATV. Sony paid Jackson $115 million as an equalizing payment. Sony also promised to pay him $32.5 million over the next five years.

The primary purposes of the 1995 agreement were “(a) to own and exploit Sony/ATV’s assets and to collect income derived therefrom, and (b) to acquire and/or administer additional music publishing catalogs and to collect income derived therefrom.” It was also the stated intent of Sony and Jackson to “actively expand [Sony/ATV] by future acquisitions.” The deal was by all accounts a good one for both parties and left Jackson with both nearly equal power over the company and a considerably enhanced pile of cash.”

The text does not mention Branca’s 5% interest in Sony/ATV, so is there any proof that he really had it, besides his testimony given under oath, of course?

Surprise-surprise, but the proof comes from Marco Balletta, a fierce Branca’s critic, who first vehemently disputes the fact and then refers us to an agreement where Michael Jackson agrees to pay Branca’s firm the sum of $13,5 million for “relinquishing his interest  in the Company and Musical Compositions”.

But if the payment of $13,5mln relinquished that interest, doesn’t it mean that before that the interest did belong to Branca and his firm?

Of course it does.

It is just necessary to read the documents carefully, guys 🙂

AGREEMENT

1. Waiver Payment. MJ jointly and severally agrees to pay to the First Thirteen Million Five Hundred Thousand Dollare ($13,500,000) (the “Waiver Payment”), representing Payment to the Firm for relinquishing its interest in the Company and the Musical Compositions.

~

Now that we made sure that that Branca’s firm really had a 5% stake in Sony/ATV, let’s see how come it was sold back to Michael.

This sale is the second hotly disputed issue with regard to Branca.

The problem is that Michael had to buy Branca’s 5% stake back at a time when he didn’t have enough funds to repay his $272.5 mln debt to Bank of America (BOA), out of which the loan for $200mln was to mature very soon, in December 2005. So the 5% deal was only adding to Michael’s financial burden and – according to Branca’s critics – could even contribute to his bankruptcy.

Well, these people rightfully say that the payment of $13,5mln to Branca’s firm was certainly untimely, but they do not mention the crucial little detail that the sale of Branca’s stake was forced on him and Michael by the Fortress Capital Group which demanded it as a precondition for their acquisition of Michael’s debt from BOA.

A quick reminder of how the Fortress hedge fund came into the picture.

Sometime in 2003 Bank of America suddenly decided to get rid of Michael’s debts and resell them to another creditor. Michael had some refinancing options, out of which two were the major ones.

The first was a deal with Fortress Capital Corp. brought on stage through a succession of brokers and initiated by his brother and then manager Randy Jackson. Randy was looking for a company that would not only buy from BOA and refinance Michael’s debts, but also provide hundreds of millions to sponsor the purchase of Sony’s share in Sony/ATV by Michael, so that he became the sole owner of the catalog.

The second option was a deal with Goldman Sachs, arranged by Alvin Malnik and Charles Koppelman. Their offer dated April 15, 2003 envisaged the sale of both Michael’s catalogs including MJJAC but instead gave him a 10% share in a new joint venture (Music LLC) created in partnership with Goldman Sachs, which was to compensate for the sale of his own assets.

Here it is.

The goal of the venture was the industry dominance. The initial Music LLC stock was to be divided between Michael Jackson and Goldman Sachs fifty-fifty, but since Goldman Sachs planned to also buy Sony’s share in Sony/ATV and then Warner-Chappell (Warner Music Group’s music publisher), Michael’s stake in this gigantic project was to eventually shrink to 10%.

However Goldman Sachs still compared the status MJ would enjoy to that of Bill Gates:

“Like Bill Gates, MJ will own a smaller equity stake in multi-billion dollar company which will become platform for significant personal wealth creation”.

The Godman Sachs project took two years in the making. Koppelman charged $1mln a year for his services, Al Malnik worked for free, while John Branca revised the terms of the proposal working on the usual percentage based on his 5% stake in the catalog.

In his letter to Koppelman of July 28, 2003 (when he was alleged to be ‘fired’) Branca defended Michael’s interests in each of its points saying that Michael would not give up his assets unless the Warner-Chappell was acquired. Among other things he also insisted that Goldman Sachs should take over responsibility for the BOA loans up to the whole sum of $270 million so that Michael did not have further responsibility for it.

Well, at some point Goldman Sachs did agree to provide Michael with $135 mln in cash. This was enough to reduce his $200mln BOA loan to $132mln and pay his entire BOA loan secured by MJJAC catalog (at that time it was $35mln, but in August 2003 was increased to $70mln). The Goldman Sachs proposal also provided for cash to Michael in the amount of 12mln in the first year, and $3.5mln annually for 5 years.

The final terms of Goldman Sachs project are unknown to us. They could be the same as listed above or more favorable to MJ, however Branca warned him that in case he agreed he would have little control over the assets management. For example, he would have only 2 seats in the 7-10 member board committee of the joint venture.

In the end Michael rejected the proposal, Koppelman was fired from his paid position of an advisor (which, by the way, was imposed on Michael by his banker Jane Heller of BOA), Al Malnik, who worked for free, left on his own to never return again, and a month later, in May 2005, Fortress Capital Corp. broke on Michael Jackson the bad news that BOA was selling his debts to them and behind Michael’s back too – he didn’t know about it and thought that they were still in negotiations.

And this is when Fortress also informed Michael that they would not close the deal unless Michael’s part of the catalog was free from any claims by third parties – namely by John Branca and his firm.

We learn about Fortress’s demands from Marco Balletta again, who refers us to an excerpt from Daniel Groppel’s deposition, the Fortress Managing director, who said that they were willing to write a cheque for $300 mln, but only on condition that Branca’s stake in the Sony/ATV catalog was removed.  

Branca’s ownership of 5% was a “complication” for them.

Q.  What was Fortress’ position with respect to closing without paying Branca?

A. Well, the complication came with repsect to that Branca had filed some sourt of a UCC against the music assets. We weren’t going to fund — again, it was a very technical legal point about how the old liens could be released and the new liens attached to the catalog as it moved to New Horizon Trust and we wanted all issues regarding potential liens resolved at the time we wrote a $300 million check.

[ ] …. having the assets moved to the new trust that his lien jumped ahead of mine, so whether or not that lien was valid or not, I didn’t really care, I just needed it to be that when I funded $300 million that it was 1,000 percent clear, that I was the first lien and there were no other liens against the catalog.

For lay people like us the reference to a certain UCC statement from Branca may sound complicated (more about it later), but the key takeaway from the above is that in case Michael defaulted in payment of his debt to Fortress Capital Group, this investment fund wanted to be the first in line to get MJ’s part of the catalog and be “1,000 percent clear that there would no other liens against it” except their own.

~

Now what was this UCC financing statement all about? Was it a claim, complaint or request for immediate payment or what?

Wikipedia explains:

A UCC-1 financing statement (an abbreviation for Uniform Commercial Code-1) is a legal form that a creditor files to give notice that it has or may have an interest in the personal property of a debtor.

The filing of a UCC financial statement creates a hierarchy of which assets can be seized, and in what order, should the debtor default or declare bankruptcy. 

Finaldi asked Branca about the reason why he filed that UCC statement and Branca replied that it was certainly not a lawsuit (p.150 of his deposition):

Q            At one point in time you filed UCC claims against MJJ Productions and his trusts, right?

A            I think in 2005 or ‘6, yeah.

Q           Were those lawsuits or were they just claims; you know?

A           The UCC file- — I would never sue Michael Jackson.

Q            They were against his entities?

A            The UCC filing I don’t recall if it was against him personally, against the publisher. I don’t recall what companies. It was just to make sure if there was a sale of Sony of his interest in ATV, we would get paid what we were owed. But it certainly wasn’t a lawsuit.

So in accordance with the purpose of any UCC statement Branca’s document was giving notice or actually stated their right to a guaranteed payment of their 5% interest in that catalog if it came to the worst and Michael defaulted on the loan.

But it was certainly not a demand for payment of his 5% stake.

The details are provided by Marco Balletta again (who seems to have access to most confidential documents regarding Branca’s intentions).

The first page of Branca’s UCC statement covers his 5% interest in the Sony/ATV catalog plus 5 percent of the proceeds it generated.

“This financial statement covers the following collateral – Five percent (5%) of Debtor’s Membership interest in Sony/ATV Music Publishing LLC, a Delaware limited liability company (the “Company”), and five percent (5%) of general intanbiles, accounts receivable, payment intagibles owed to or owned by Debtor and any other rights to payment of all sums otherwise payable to the Debtor under the Compnay’s limited liability company agreement, including any and all amendments thereto, or otherwise payable to the Debtor on account of or as a result of Debtor’s membership interest in the Company.

And the next page refers to his 5% interest in publishing rights for some musical compositions plus 5% of the proceeds generated by those songs:

This financing statement covers the following collateral – Five percent (5) of the Debtor’s interest in the musical compositions listed in Section 16 of the Addendum, and five percent (5% of general intangible, accounts receivable, payment intangibles, and any proceeds, products or rents arising therefrom and owed to or owned by Debtor, and any other right to payment on account of or arising as a result of the Debtor’s interest in the musical compositions listed in Section 16 of the Addendum.

There is nothing in these documents indicative of any requests to pay.

~

But why did Branca make a UCC statement in September 2005, in the midst of Michael’s trouble with Fortress group?

Here is the document explaining the date and it is found in “Joseph Jackson’s Objection to Appointment of John Branca and John Mcclain as Executors of the Estate of Michael Jackson” filed on November 9, 2009.

The document is dated December 18, 1998 and is called “Waiver of Direct Payment”.

It mentions the 5% interest of Branca’s firm (again!) and states that they will waive their right to a direct payment of it “through September 30, 2005”.

In other words the 1998 waiver from Branca’s firm guaranteed to Michael that for the next seven years they would not realize their right to sell their 5% stake – to Michael, Sony or anyone else. 

The purpose of the waiver was to facilitate the new loan transaction between the MJ Publishing Trust and Bank of America.

MJ’s former business advisor Myung Ho Lee claimed that by that moment the first $90mln loan arranged by him for Michael had been depleted, and a new $140 mln loan was being negotiated which was to be used to pay the earlier debts. The Sony/ATV catalogue served as collateral for the loan and Branca’s waiver was meant to guarantee to BOA that his firm would not complicate matters by demanding payment of their 5% interest within a set period of time.

Besides the 5% interest the Waiver mentioned certain fees due to Branca’s firm for the amount of $2,275,000 which were discounted by them to $1,864,200. The fee was charged with respect to some future “Guaranteed Advances” and was to be paid from the proceeds of the loan. 

Please memorize the sum of $1,864,200 as it is important.

Here is the Waiver:

December 18, 1998

Mr. Michael Jackson

MJJ Productions

              RE: Ziffren Bottenham Branca & Fischer – Waiver of Direct Payment

Dear Michael:

In order to facilitate the loan transaction between MJ Publishing Trust and Bank of American National Trust & Savings Associating (the “Loan”), you and our firm have agreed as follows:

1. The firm will waive direct payment of the 5% otherwise payable to us with respect to future “Guaranteed Advances” through September 30, 2005.

2. The firm will waive direct payment of the 5% otherwise payable to us with respect to the “Put Price”, and

3. In addition , in lieu of the $2,275,000 that would have otherwise been payable to the firm pursuant to section 1 above, you agree to pay to the firm, and the firm agrees to accept, the full amount of $1,864,200, which represents the aforesaid fees discounted to present value at an interest rate of 6,16% (which is the same interest rate as applicable under the Loan). The aforesaid payment shall be made from the proceeds from the Loan.

So the Waiver was effective for seven years and was to expire on September 30, 2005.

Now look at the date of Branca’s UCC Financing statement.

Branca’s UCC financing statement was filed on September27, 2005

It is September 27, 2005 which was three days before the expiry date of the previous guarantee letter and was sort of its renewal, only in the form of a UCC statement which reaffirmed Branca’s 5% stake in the catalog and made sure that in case of default it would be payable to his firm ahead of other claims. Remember that UCC statement has to do with the hierarchy of which sum is to be paid first.  

All of it makes the timing of that UCC statement perfectly reasonable.

There are no sensations here.

The only problem is that despite his own intentions Branca did have to sell his stake in the catalog in mid-April 2006 and we know the reason why – the sale was demanded by Fortress Capital Group as a precondition for closing their deal with Michael Jackson.

Even Branca’s critics (like SymOs60, for example) have to agree that “selling the Branca claim was an essential precondition for the refinancing to close because it directly affected the collaterals being used as security”.

The motivation for Fortress’s actions is now absolutely clear – they didn’t want anyone, especially a law firm, to stand between them and Michael’s half of the catalog in case he defaulted on his payments, of which they were sure of course.

~

In fact, their ultimate goal to get Michael’s half of the catalog and for peanuts too cannot be disputed because this is what a hedge fund is all about.

Financiers describe a hedge fund as a sort of an exclusive club with a limited membership for very rich players who first pool money and then invest it with the help of the fund’s managers, who employ highly speculative and aggressive techniques in order to quickly bring back large capital gains to the original investors:

  • «A hedge fund is an investing group usually in the form of a limited partnership that employs speculative techniques in the hope of obtaining large capital gains.”
  • “Hedge funds are organized to be very exclusive, requiring a very long commitment and limited membership. The managers are much more daring and will take much more aggressive risks than mutual funds.”
  • “Hedge funds invest in virtually anything and everything—whatever the fund manager sees as offering high potential returns in a short period of time. The focus of hedge funds is on maximum short-term profits.”
  • “Hedge funds are investments that use pooled funds and employ a variety of strategies to earn returns for their investors. The aim of a hedge fund is to provide the highest investment returns possible as quickly as possible. To achieve this goal, hedge fund investments are primarily in highly liquid assets, enabling the fund to take profits quickly on one investment and then shift funds into another investment that is more immediately promising. Hedge funds tend to use leverage, or borrowed money, to increase their returns.”

The key takeaway from the above: a hedge fund is a game for the super rich, who want their money back with maximum returns and within a very short time too.

And this is what Fortress surely intended to do with Michael’s collateral that secured the loan – they would charge him so high interest rates that he would be unable to service the loan, and if/when he defaulted in payments they would grab his assets. This was the idea of their project from the start of it and having to do with the 5% stake belonging to Branca’s firm was not part of the plan.

Actually the prize asset didn’t require a long waiting – the loan of $200mln secured by Michael’s half in Sony/ATV was to mature just half a year later, on December 20, 2005, so Fortress didn’t even bother to offer Michael any refinancing terms.

Dictionary explains what refinancing means:

  • “To refinance a loan means to replace it with a new loan typically on more favorable terms, including a lower interest rate and reduced monthly payments, or a longer period of time to repay. Even if a new loan has a much lower interest rate than the one you’re refinancing, origination fees could mean paying more over the entire loan term.”

But instead of providing more favorable terms to Michael, as Randall Sullivan said in his book, Fortress

  • “began to ratchet the interest rate on Jackson’s debt up past 20 percent per annum”.

Richard Siklos in his “Fortune” article also reported that Fortress charged MJ with an interest rate “in the mid- teens”:

  • Because of covenant breaches and penalties, the loans now carried stiff terms, with an interest rate in the mid-teens, say two people who were involved in Jackson’s finances. Jackson’s income consisted of small dividends from Sony/ATV, $10 million or so from MiJac, plus roughly $10 million from music royalties and other sources — but that was not enough to stay ahead of his mounting interest payments and his legal and living expenses.

The refinancing negotiations with Fortress dragged on while the December 20, 2005 deadline was quickly approaching, however in the winter of 2005/06 the hedge fund not only agreed to postpone the date of the loan repayment (signing a forbearance agreement which charged MJ extra millions for the postponement), but even agreed to reduce their interest rate to 6% or so.

However this charitable act on the part of Fortress did not occur out of much love for Jackson.

The thing is that as soon as Sony learned that Fortress was going to call in the $200mln loan in December 2005, they brought in the Citygroup bankers as a new potential lender who offered Michael much more favorable terms, however Fortress used their right of the first offer and matched the Citygroup’s proposal with similar terms.

Everyone was surprised, but the riddle was simple to crack.

So big was Fortress’s desire to get Michael’s assets that they were even ready to temporarily reduce their appetites.

Richard Siklos provided the details: 

In late 2005, Jackson received a fax from Robert Wiesenthal, the chief financial officer of Sony’s U.S. business. Wiesenthal understood that Jackson was days from defaulting on his Fortress publishing loan and offered to meet to discuss ways to help.

Besides aiding a partner, Sony was concerned that Jackson’s half of Sony/ATV could end up in bankruptcy court — or in the hands of an outsider like Burkle or Fortress. Howard Stringer, Sony Corp.’s chairman, dispatched Wiesenthal to Dubai. In a gilded hotel suite, Wiesenthal met with Jackson and several of the sheikh’s advisers and explained that Sony had lined up bankers from Citi who were willing to refinance Jackson’s ATV debt on much better terms.

In exchange, Sony received a freer hand to make investment decisions without Jackson’s approval; a right of refusal on his stake; and an option to buy half of Jackson’s half for around $250 million. To everyone else’s surprise, Fortress exercised a right it held to match any financing terms and held onto its Jackson loans, though only for a short term.

Fortress’s tenacious hold to Michael’s debts is giving away their major goal – they were actually after Michael’s assets and whatever interest they charged on the loan was only a means to get them.

The Tax Court judge confirms the above conclusion as he describes the perilous situation in Michael’s finances in 2005, which took place right at the time when Michael was standing trial due to the Arvizo allegations and was then acquitted on all counts.

From The Tax Court Memo of May 3, 2021:

Acquittal did not rehabilitate his reputation. And this ordeal did nothing to stanch the outflow of his wealth. He continued to spend great gobs of money in excess of his now shrinking income. To keep pace, Jackson took out additional loans secured by his assets. The terms of these loans became ever more onerous because [ ] fewer banks were willing to even consider doing business with him after the criminal trial.

One very important instance of this happened in 2005 when Bank of America cut ties for fear of its own reputation. It did this with a sale of Jackson’s debt to Fortress Capital Corporation. Fortress was a distressed-debt hedge fund that lent money on terms that aimed less at repayment and more at ultimately gaining control of the underlying collateral — which now included Neverland.

Fortress [ ] seemed happy, in a usurious way, to increase Jackson’s debt to around $270 million. This had two effects.

The first was that Sony required him to agree to amendments to the Sony/ATV operating agreement before it would allow him to further encumber his interest. These amendments included a grant to Sony of an option to buy 50% of Jackson’s interest at a value capped at a maximum formula price determined as of March 2006.

The second was that Jackson’s annual interest payments to service the loan increased to around $15 million — well in excess of his annual distribution from Sony/ATV.”

So the Tax Court judge says it point blank that Fortress aimed less at repayment of their money and more at gaining control of the underlying collateral.

No wonder Michael Jackson suspected that all of them were after his ATV catalog.

Only he thought that the end goal was only his catalog, while the scenario was actually bigger – the plan was to deprive Michael of all his means of substance and leave him penniless, and the party that would rob Michael of his main assets was of less importance to those behind the project.

It could be Fortress Capital Corp, AEG Live or some Smith & Co, or whatever – anyone would do, as long as they were greedy enough to serve the main goal.

However neither Branca, nor even Sony had anything to do with it.

[end of part 1] 

2 Comments leave one →
  1. Jolanta Czajerek permalink
    July 24, 2021 6:35 pm

    Very interesting and important information. Thank you Helena.

    Like

  2. July 14, 2021 9:03 pm

    Exhaustive, but important. Thank you.

    Like

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