Hedge Fund Sees 'Egregious Fraud' At Broadcaster

Oct 12 2010 | 1:06pm ET

Hedge fund R2 Investments is suing Citadel, alleging "a shocking display of corporate greed and dishonesty" and a "most egregious fraud."

Citadel Broadcasting, that is.

The Fort Worth, Texas-based hedge fund, part of Q Investments, blasted Citadel Broadcastings's management team and board of directors for awarding themselves $110 million in stock grants just months after exiting bankruptcy. That goes against the third-largest radio company's own reorganization plan, which called for awards to be made in options, rather than outright stock grants.

Those grants dilute R2's own tiny stake in Citadel Broadcasting, it alleges.

If Citadel Broadcasting is allowed to get away with it, "there wood be a new tag line in Corporate America: 'Attention all CEOs—not happy with your pay package? File your company for bankruptcy, mislead the judge about your true intentions immediately after you emerge from Chapter 11, and then you can become the highest-paid executive in your industry and potentially even become worth well over $100 million," the Citadel Broadcasting suit offers.

Citadel Broadcasting CDO Farid Suleman received have of the stock awards as part of "a disturbing game of quid pro quo," R2 alleges.

Citadel Broadcasting, which is not affiliated with Citadel Investment Group, denies the "misleading and inaccurate charges."

"The board of Citadel Broadcasting, which was appointed by the lenders, acted appropriately, within its authority under the equity incentive plan that was filed with the court and in the best interests of the company," Citadel said. "When the court reviews the record, we are confident this motion will be dismissed."

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