SFX, Sillerman Settle Lawsuit Accusing Sillerman of Stealing Idea Behind Company

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The promoter, its founder and a top executive were alleged to have stolen the idea for an EDM conglomerate.

SFX Entertainment has settled a lawsuit which alleged chairman and CEO Robert Sillerman stole their idea for the consolidated EDM promoter that became SFX. Paolo Moreno, a manager at Disco Donnie Presents; artist manager Lawrence Vavra; and Moreno's brother, Gabriel Moreno joined SFX, Sillerman and Sheldon Finkel, SFX's chairman of strategy and development, in reaching a settlement agreement on January 22. 

Terms were not disclosed. However, in a statement to Billboard, Steven. N. Feldman from Hueston Hennigan LLP said the plaintiffs "are very satisfied with the settlement" and the conclusion came "less than two weeks before SFX and Mr. Sillerman were due to face trial."

The Morenos and Vavra sued SFX, Sillerman and Finkel in 2014 in a U.S. District Court in Central California. The three men claimed to have entered a joint venture/partnership agreement with Sillerman and identified and facilitated seven of the eight major acquisitions that helped build SFX into EDM's version of Live Nation. Sillerman allegedly reneged on an agreement to provide them equity in the new company.

SFX still has another legal battle ahead. In September, a class action lawsuit was bought over alleged "false and misleading statements" made during CEO and chairman Robert Sillerman's effort to take the company private. Sillerman has twice announced plans to take SFX private. Both attempts failed. The lawsuit called the second acquisition proposal a "sham process" to maintain SFX's stock price and attracted potential third-party buyers.

The effect of these events, along with disappointing financials, can be seen in the company's stock price. At midday Tuesday, an SFX share cost 10.2 cents per share, well below its 52-week high of $5.25.

The company is also facing an uphill battle to repair its balance sheet. SFX has hired a consultancy firm that specializes in distressed companies in order to weigh options that include bankruptcy, debt restructuring and asset sales. On January 14, SFX secured a credit facility for $30 million, with a 20 percent per year interest rate, and borrowed $20 million under the facility. A week earlier, SFX was notified by a credit it was in default on a $10.8 million loan because it had failed to make a scheduled payment of $3 million.