Disgruntled investors in a venture to place "quality,
nonviolent" children's fare on cable leased-access channels have sued the
channel's management, marketers and executives, alleging that they frittered away
most of the estimated $17 million that was invested by shareholders.
An attorney for the investors said the shareholders can
account for only $650,000 of the money invested in Children's Cable Network. Letters
from CCN managers said that amount was reinvested in another proposed cable network, My
Pet TV. Michael Marcovsky, president of My Pet TV, used to be president and chief
operating officer of CCN, according to supporting documents submitted in the lawsuit.
"We don't think that this was ever viable,"
said plaintiffs' attorney Brian Kabateck. The defendants knew how difficult it was to
launch a cable network, yet they told investors that "there was incredible money to
be made ... even though there was no mechanism in place to sell ad time."
The suit was filed in Los Angeles Superior Court, and
attorneys are seeking status as a class action on behalf of 1,200 investors who paid
between $10,000 and $125,000 to be part of CCN. Included as defendants were CCN; Olympic
Entertainment Group of Las Vegas, which does business as CCN; its current president,
Dominic Orsatti; its former president, Marcovsky; and My Pet TV. The suit alleged that the
officers violated securities laws and misrepresented facts.
Orsatti issued a statement saying emphatically that the
company will be vindicated, adding that it has never sold securities to any of the three
investors named in the suit. The lawsuit is without merit, he wrote.
Marcovsky, the former head of Nostalgia Television (now
Goodlife Television Network), said the managing partners of affiliates in CCN authorized
the My Pet TV investment. According to letters to investors (which were provided to Multichannel
News by the plaintiffs' attorneys), the partners made the decision after Cable
Marketing and Management Inc., the latest in a series of managers, advised affiliates that
the leased-access concept was no longer viable.
Kabateck said he will seek a restraining order against CCN
and My Pet TV to freeze their activities pending a review of their accounts.
"This [suit] is not a make-or-break situation [to My
Pet TV] ... it's not fatal or fattening," Marcovsky said. "There are
significant numbers of people in the investment groups who don't want My Pet TV to
fail," and who are unaware of the suit filed on their behalf, he added.
CCN planned a pattern of affiliates in major TV markets
nationwide. Each affiliate partnership sold $10,000 investor units to raise $500,000 per
market. In theory, the affiliates, supported by a management company, would buy
leased-access time on cable systems across the DMA at the same time and program it with
old, but award-winning, shows such as Dusty's Treehouse. Affiliates would make
their money by selling sponsorships and ad time.
Literature soliciting investments in CCN stated that they
involved "a high degree of risk," and that the funds of each partnership were
subject to substantial charges for consulting services, sales and advisory fees. Indeed,
documents submitted to the court indicated that 85 percent of the partnership money went
to telemarketing, management, licensing fees and other costs, leaving the local affiliate
only $75,000 to buy leased-access time and to solicit advertisers.
The attorney said investors were lured with promises of big
returns on investments and allusions that bigger companies, such as ones owned by
"Rupert Murdock [sic]," might be interested in buying out their venture.
When it appeared that the original concept would not work,
investors were told that CCN would try to become a corporation so that it could attract
national advertising, since only one affiliate had been able to sell a local 30-second
spot. Then, in November, notification went out that $650,000 of CCN funds were invested in
My Pet TV.
By January, the latest management company advised
dissolving all partnerships, because "there is no money or value left in CCN,"
according to a letter copied by the plaintiffs' attorneys. The suit was filed three