At issue is a joint venture that Penske claims was never disclosed before he bought Variety, but the venture partner counter-accuses
New Variety owner Jay Penske is embroiled in a legal mess in which he accuses a former top executive at Variety of committing fraud in an alleged kickback scheme during his purchase of the trade last year, TheWrap has learned.
Meanwhile the defendant in that case filed a counter-suit on Tuesday, alleging that Penske ignored a joint venture that existed before he bought the trade and cut them out of millions of dollars of sponsorship business.
TheWrap obtained a copy of the Penske lawsuit, dated April 29, 2013, against the Beverly Hills Media Group and its CEO Bert Bedrosian and marked for L.A. Superior Court.
The complaint accuses the unnamed "executive officer" of Variety of engaging in a "fraudulent, self-dealing transaction while the assets of Variety were being marketed for sale for the purpose of diverting substantial revenues generated by Variety."
According to the pleading, the Variety executive and Bedrosian allegedly "conspired" to enter into a "fraudulent and self-dealing agreement" for their "personal enrichment" over an entertainment event, Beverly Hills Entertainment Week, which was meant to be held last year but never took place.
Variety and BHMG had created a joint venture to hold events and share sponsorship revenue.
The Variety executive, according to the pleading, was on the advisory board of the Beverly Hills Media Group.
The pleading appears to be referring to former Variety President Neil Stiles, who is listed on a cached version of the BHMG site as a member of its advisory board. (Much of the BHMG website appears to have been taken down.)
Also read: Deadline Owner Penske Media Buys Variety
Meanwhile, the Beverly Hills Media Group filed a counterclaim against Variety LLC on Tuesday for "breach of fiduciary duty," claiming that Penske stole "valuable opportunities worth tens of millions of dollars" that belonged to the joint venture.
The counterclaim also said Penske, through Variety personnel "defamed, embarrassed and attempted to humiliate BHMG and its personnel in the very community and prospects BHMG was responsible for bringing to the table."
At issue appears to be a $500,000 sponsorship of the Beverly Hills Entertainment Week. BHMG said in its claim that it was by far the largest sponsorship ever secured in the history of Variety.
Penske said that it was a scheme to enrich BHMG and the unnamed Variety executive, and that he now must fulfill another pricey obligation to the sponsor since the event never took place.
Penske claims that this agreement was not disclosed during due diligence for the purchase of Variety late in 2012, a fact that BHMG disputes, saying instead that Penske ignored their request for a meeting during due diligence. Penske bought the declining trade at a fire sale price of about $25 million from Reed Elsevier, with hedge fund investor Daniel Loeb.
"Variety was so brazen in its conduct that it continued to use the exact same work product, business model and solicitations already in process, almost entirely developed by BHMG and the property of the joint venture, but simply excluded BHMG from any mention or participation, including participation in profits," according to the counterclaim.
That suit also alleges that Penske "has a pattern of practice of similar misconduct with many of its business contact and associates."
Stiles, who exited Variety at the end of last year, could not be reached for comment for this story. Bedrosian and BHMG did not immediately respond to emails seeking comment.
The lawsuit does not seek damages against the Variety executive.