Disney Confronts Yet Another Hurdle in Plans to Buy KHJ-TV

Walt Disney Co.’s plans to purchase KHJ-TV Channel 9 met another possible obstacle Thursday as a Federal Communications Commission official called for a hearing into business dealings of a principal figure in the proposed $320-million deal.

FCC Administrative Law Judge Edward J. Kuhlmann ordered an inquiry into past activities of Los Angeles lawyer William G. Simon, founder and president of the investor group Fidelity Television. Fidelity is part of a three-way transaction to sell Channel 9, now owned by RKO.

The judge called for an investigation of whether Simon was involved in misrepresentations to the FCC while he acted as attorney to a group seeking a license to operate a new television station in Ventura.

The investigation will explore whether Simon participated in the “misrepresentations, lack of candor and other misconduct” by his former client, Channel Islands Broadcasting, the judge wrote in a memorandum.

Simon, 73, is former head of the FBI’s Los Angeles office, as well as president of the investor group that includes such local notables as restaurateur Maude Chasen, producer Mervyn LeRoy and former U.S. Rep. George Danielson.

After waging a 22-year campaign to wrest KHJ’s license from RKO, Fidelity this year agreed to a deal that would give the license to Fidelity, then immediately transfer it to Disney. RKO would get $217 million, while Fidelity investors would be paid $103 million for agreeing to have their company acquired by Disney.

But the proposal has been opposed by the FCC Mass Media Bureau as well as by Los Angeles Television, a new investor group that has applied for the KHJ license.

In a harshly worded opinion issued last week, Judge Kuhlmann called RKO unfit to hold a broadcast license because of dishonesty in dealings with the FCC and other actions.

Attorneys for RKO and Fidelity contended on Thursday that Kuhlmann’s rulings are not likely to disrupt a deal the full FCC may consider for approval as early as next month.

“This kind of inquiry is common in FCC proceedings,” said Frank Mullin, attorney for Fidelity. “We don’t think this will affect the deal.” Mullin said Simon had not read the opinion and would not comment. Disney also declined comment.

The dealings in question arose in 1981, when Simon represented Ralph Andrews, a television producer and principal in Channel Islands Broadcasting, in their competition with a firm called California Broadcasting for a license for a new Ventura station. Both an FCC administrative law judge and an FCC appeals panel turned down Channel Islands’ request on grounds that the firm had repeatedly misrepresented its financial capabilities in statements to the regulatory agency.

The agency found that, in seeking the license, Andrews had submitted false financial statements that overstated his net worth by $1.75 million.

Among other misrepresentations, Andrews said he owned property worth up to $3.6 million at the Oxnard Shores development in Ventura County. But he failed to disclose that others owned 40% of the real estate.

While Simon said he was not familiar with the details of Andrews’ finances, records in the case showed he approached First Interstate Bank to arrange borrowing for Andrews’ company, the judge noted. He said Simon also apparently withheld information from First Interstate and another prospective lender to convince the FCC that Channel Islands was financially qualified.

More than acting simply as local attorney to Channel Islands, Simon “actually organized the applicant, recruited the corporate officers and shareholders, arranged the organizational meetings,” Kuhlmann wrote. “It appears from the facts alleged that Mr. Simon aided Mr. Andrews in his scheme to hide information.”