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Red Tape Ahead for EMI, Sony/ATV as Justice Dept. Seeks Restraining Order in Corruption Case

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Sources within the consortium of EMI owners insist that the civil forfeiture complaint filed yesterday by the U.S. Department of Justice -- seeking the portion of assets owned by Jynwel Capital -- won't impact the operations of the company, however, it’s clear from a new restraining order motion that both EMI Music Publishing and Sony/ATV Music Publishing are about to be buried under miles of red tape.

As part of its civil complaint seeking assets bought with allegedly laundered funds from a Malaysian government entity, the Dept. of Justice has asked the U.S. Western Division Central District Court of California for a restraining order to prevent EMI Music Publishing from paying any royalties to Jynwel and other affiliated entities.

It was disclosed on Thursday that a number of individuals, apparently led by Jho Low (also known as Low Taek Jho), had used the misappropriated funds to boost investments in trophy real estate, the Wolf of Wall Street and EMI Music Publishing. Using Jynwel as a front, the group provided $106.66 million toward the purchase of the $2.2 billion acquisition of EMI Music Publishing, made by a consortium of investors led by Sony Corp. Any profits, royalties and distribution proceeds owned by JW Nile Ltd, JCL Media and Jynwel Capital should be paid to the U.S. government, according to the motion. The DOJ's forfeiture complaint contends that its allegations are probably cause to believe that Jynwel Capital's slice of EMI Music Publishing is subject to forfeiture.

Acquisition of EMI Publishing Cited in High-Profile Malaysian Corruption Case from Dept. of Justice

In laying out the capital structure of the EMI investors, the complaint names names, how much money they put in and how many shares they got in return for Stock A, which put Jynwel's slice at 22.06 percent of what is described as the shares of Partner A, consisting of all the financial entities that helped Sony/ATV and its partner, the Michael Jackson Estate, identified in the compliant collectively as Partner B.

So while Low's investment got him 22.06 percent of Partner A's shares, that measurement doesn't take into account Partner B's shares in EMI, which the motion lays out as 39.83 percent of the overall company. This means that Partner's B shares collectively own 60.17 percent of EMI. Consequently, Billboard estimates Jynwel's share of the overall company is not 22.06 percent but actually 13.4 percent.

In exchange for the funding, Low, the principal shareholder in every company used to front his investment in EMI, was named non-executive vice chairman for EMI Music Publishing Asia. His role is described as “observational oversight of the business operations of the Partnership in Asia excluding Japan” and he also got to select two of the nine directors allowed to those who had Stock A shares.

As a member of the board of directors, Low was also invited to attend “ceremonial events relating to EMI and any other music industry public events that may be relevant to EMI.”

The motion requests that the Court order EMI Music Publishing Group be restrained from dissipating the assets held by Low and that the U.S. Marshals Service be granted information into all financial accounting associated with EMI. It also requests that the management of EMI continue to operate, function and maintain business as usual, rather than a more intrusive remedy, such as a seizure. The assets are to be available for forfeiture should the DOJ win. In that case, sources suggest that the existing EMI partners would buy out the Low stake; or bring in another investor to do so.

The motion also asks the court to instruct the managers of EMI Music Publishing to identify all accounts being used by the company, and to further identify all individuals and entities the have access to or control those accounts.

The motion requests that EMI maintain all existing contracts, policies and practices and shall not reduce the quality or frequency of those actions, unless further ordered by the court. EMI managers also can't destroy business records, unless approved by the court or government monitors, according to the document.

Furthermore, the court appointed monitor, Marshall Services, shall have the authority to approve all transactions and have to right to scrutinize all records and information regarding transactions or obligations.

The motion requests that the Marshall Services or its agents to be allowed entry into any part of EMI and Sony/ATV's business premises during business hours to observe all aspects of the EMI Music Publishing and Sony/ATV operations. It also requests the ability to interview any employees, contractors, vendors and consultants of EMI Music Publishing and Sony/ATV Music Publishing.

All payments for purchases and/or leasing equipment, plus employee wages, bonuses and other renumeration, must be approved by the Marshall service. 

Net proceeds given to Low entities must be deposited into an escrow account, pending resolution of the case. The Marshall Services is expected to appoint a manager to handle the responsibilities requested and laid out in the motion.

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