• by Steve McClellan  @mp_mcclellan, September 12, 2013

KSL Media operated for 32 years before shuttering all but a skeleton staff of about 30 employees this week to help wind down the operation. And if it hadn’t been for the alleged embezzlement of the firm’s former controller -- reportedly under investigation by the FBI -- the company might still be going strong.

That’s according to the Janet Miller-Allen, the current controller of the agency, who has been designated to oversee the wind-down process of KSL and two affiliated entities, TV10’s and Fulcrum 5.

In a declaration submitted with the company’s Chapter 11 bankruptcy petition on Sept. 11, Miller-Allen stated that KSL’s “financial well-being was seriously undermined in recent years by the criminal malfeasance of the debtor’s former corporate controller, Geoffrey Charness,” who served in the controller’s role between 2006 and 2010.

“I am informed and believe that Mr. Charness’ actions have harmed the debtor in at least three ways, leading to tens of millions of dollars in damages and losses,” Miller-Allen stated.

She explained in her declaration that Charness “appears to have taken large sums of money from KSL for the personal benefit of himself and his wife during his employment.” Miller-Allen estimated that he allegedly transferred $145 million of the firm’s money to credit card accounts held by him and his wife. Some of the funds were used to pay KSL expenses although the agency believes that “a substantial amount of these funds” were used for their own personal benefit.

The company is still trying to determine the total amount of money diverted for the Charness’ personal use, Miller-Allen stated. KSL has sued Charness in the California Superior Court for the Northwest District of Los Angeles, seeking recovery of the embezzled money, per Miller-Allen.

In addition, Miller-Allen declared, “I am informed and believe that the Federal Bureau of Investigation also is engaged in an active criminal investigation of Mr. Charness based on these same activities.” KSL has been cooperating with that investigation, Miller-Allen told the Bankruptcy Court.

Charness also contributed to the firm’s demise by failing to maintain proper financial records. As a result, at least one client -- Cumberland Packing Corp., which markets Sweet’N Low, the artificial sweetener -- sued the agency. KSL was forced to settle for a multimillion-dollar amount after it determined that it couldn’t defend itself “due to the accounting practices followed during Mr. Charness’ tenure."

KSL has hired Grobstein Teeple Financial Advisory Services to conduct a forensic accounting of KSL’s books. In addition to clarifying KSL’s financial position, Miller-Allen stated, “KSL expects that the accounting will produce significant evidence in support of KSL’s and the FBI’s respective actions against Mr. Charness.” The company has unsecured debt of about $95 million and is still sorting out which creditors are owed how much.

Miller-Allen stated that KSL hadn’t been profitable for a number of years, and significantly, this was partly a result of the “damage inflicted on KSL by Mr. Charness.” After his departure in 2010 the agency “began a process of of restructuring and working to gain financial control and visibility.” Meanwhile, its biggest client, Bacardi, with annual spending of $130 million, left the agency after a review earlier this year. Miller-Allen stated that the Barcardi loss and the damage done by Charness “rendered continued operations unviable.”

Charness could not be immediately reached for comment.

Before heading to Chapter 11, KSL tried to find a buyer for the firm but could not.

The firm had about 130 staffers before filing its bankruptcy petition. The New York office is closed with a handful of employees working remotely to help wind down the firm’s affairs. Some 30 employees remain at the Los Angeles office to help with the wind-down effort.