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Before the
Federal Communications Commission
Washington, D.C. 20554
)
In the Matter of ) File No. EB-07-IH-9075
SkyPort Global Communications, Inc. ) NAL Acct. No. 200932080006
Apparent Liability for Forfeiture ) FRN No. 0011544913
)
NOTICE OF APPARENT LIABILITY FOR FORFEITURE
Adopted: November 5, 2008 Released: November 5, 2008
By the Chief, Investigations and Hearings Division:
I. INTRODUCTION
1. In this Notice of Apparent Liability for Forfeiture ("NAL"), we find
that SkyPort Global Communications, Inc. ("SkyPort"), licensee of an
international section 214 authorization and two earth stations, and
its ultimate controlling affiliate, Balaton Group, Inc. ("Balaton")
apparently willfully and repeatedly violated the Commission's rules by
engaging in unauthorized transfers of control. Specifically, we find
that SkyPort and its affiliates apparently violated section 214 of the
Communications Act of 1934, as amended (the "Act"), and sections
25.119 and 63.24 of the Commission's rules by consummating pro forma
transfers of de jure control of SkyPort to one of its existing
minority shareholders. Based on our review of the facts and
circumstances surrounding this matter, we find that SkyPort and its
affiliates are apparently liable for a forfeiture of $3,000.
II. background
2. Section 214 of the Act requires telecommunications carriers to obtain
a certificate of public convenience and necessity from the Commission
before constructing, acquiring, operating or engaging in transmission
over lines of communication, or before discontinuing, reducing or
impairing service to a community. In accordance with sections 63.12
and 63.18 of the Commission's rules, any international carrier seeking
authorization for such activities pursuant to section 214 of the Act,
including any transfer of control of facilities, must obtain approval
from the Commission. In particular, pursuant to section 63.24 of the
Commission's rules, a transfer of control of an international section
214 authorization requires application to, and approval from, the
Commission. A licensee engaging in a substantial transfer of control
of a section 214 authorization needs prior authorization from the
Commission, whereas a licensee engaging in a pro forma transfer does
not, although the latter must notify the Commission of the transfer
within 30 days thereafter.
3. The Commission employs a public interest standard under section 214(a)
of the Act that involves the examination of the positive and negative
public interest impact of a proposed transaction. For transfer of
control of an international section 214 authorization, the Commission
defines control to include "actual working control in whatever manner
exercised and is not limited to majority stock ownership." "Control"
also includes direct or indirect ownership or control, such as through
intervening subsidiaries. The Commission further defines a transfer of
control of an international section 214 authorization as a transaction
in which the authorization continues to be held by the same entity,
but where there is a change in the entity or entities that control the
authorization holder. A change from less than 50 percent ownership to
50 percent or more ownership shall always be considered a section 214
transfer of control. Because the issue of control inherently involves
issues of fact, it must be determined on a case-by-case basis and may
vary with the circumstances presented by each case.
4. Authorizations for operation and transfer of satellite earth stations
require an application and approval process pursuant to 47 C.F.R. Part
25, similar to that in 47 C.F.R. Part 63 described above for
international section 214 authorizations. This includes special
provisions for transfer of control pursuant to section 25.119 of the
rules, similar to section 63.24 of the rules for transfer of control
of international section 214 authorizations discussed above. Unlike
section 214 authorizations, under section 25.119 of the rules,
transfer of control of international satellite earth stations
authorizations must be approved by the Commission in advance, even for
pro forma transfers of de jure or de facto control. In addition, there
is a 30-day notification requirement after the transfer similar to the
requirement for international section 214 authorizations. Transfer of
control is defined as a change in the party controlling the licensee
or the controlling ownership interest of the licensee.
5. SkyPort Global Communications, Inc., licensee of an international
section 214 authorization and two earth stations (E00361 and E010295),
is a Houston-based global provider of managed, secure broadband
satellite and terrestrial telecommunications services. SkyPort is a
wholly-owned subsidiary of SkyComm Technologies Corporation
("SkyComm"), a holding company with no other functions and whose Board
members are identical to those of SkyPort. In early 2006, SkyPort was
acquired by Balaton Group, Inc., a Canadian private equity firm
specializing in turnarounds of distressed businesses. At that time,
Balaton was led by Robert Kubbernus as President and a member of the
Board and was owned 30 percent by Kubbernus and, in other
non-controlling percentages, by four other investors.
6. In July 2006, the five owners began a process of reorganization
intended to leave Kubbernus with complete control as the sole
shareholder, Chief Executive Officer ("CEO") and Chairman of the Board
("COB") of Balaton. SkyPort and its affiliates state that, pending
consummation of the reorganization, Kubbernus assumed complete control
of SkyPort regarding the composition of the Board, status of senior
executives, major management decisions, and payment of major financial
obligations.
7. On April 11, 2007, the Balaton reorganization was consummated, and
Kubbernus became the sole shareholder and COB of Balaton and continued
as its CEO. He also continued as COB of SkyPort and SkyComm. SkyPort
and its affiliates did not file any applications with the Commission
at that time relating to the reorganization. In August 2007, in the
course of a new acquisition and merger, the new regulatory counsel for
SkyPort and its affiliates discovered the undisclosed reorganization
in April 2007 and informed the Commission of that fact in the middle
of September 2007. SkyPort and its affiliates thereupon filed an
application on September 24, 2007 for approval nunc pro tunc of the
pro forma transfer of control of the section 214 authorization. The
application was granted on November 14, 2007, without prejudice to any
enforcement action in this case. SkyPort and its affiliates filed
similar applications on September 20, 2007 for Commission consent to
the transfers of control of the two earth station licenses, which were
granted on the same terms on November 8, 2007.
8. On February 27, 2008, the Enforcement Bureau issued a letter of
inquiry ("LOI") to SkyPort directing it to provide information and
documents regarding, among other things, the nature of the transfers
of control and the corporate structure of SkyPort and its affiliates.
SkyPort responded to the LOI on March 28, 2008 and June 6, 2008. The
LOI requested information on the role of each Balaton shareholder,
including Kubbernus, under the Commission's indicia of control in the
operations of Balaton, SkyComm, and SkyPort. The evidence provided in
response to the LOI indicates that Kubbernus exercised oversight of
SkyPort and its affiliates' finances, management decisions, personnel
matters, business strategies, and sales activities during the period
pending reorganization, and there is no evidence that the other
passive investors were dissatisfied with the arrangement or Kubbernus'
conduct of the business.
III. Discussion
9. Under section 503(b)(1) of the Act, any person who is determined by
the Commission to have willfully or repeatedly failed to comply with
any provision of the Act or any rule, regulation, or order issued by
the Commission shall be liable to the United States for a forfeiture
penalty. Section 312(f)(1) of the Act defines willful as "the
conscious and deliberate commission or omission of [any] act,
irrespective of any intent to violate" the law. The legislative
history to section 312(f)(1) of the Act clarifies that this definition
of willful applies to both sections 312 and 503(b) of the Act and the
Commission has so interpreted the term in the section 503(b) context.
The Commission may also assess a forfeiture for violations that are
merely repeated, and not willful. "Repeated" means that the act was
committed or omitted more than once, or lasts more than one day. To
impose such a forfeiture penalty, the Commission must issue a notice
of apparent liability and the person against whom the notice has been
issued must have an opportunity to show, in writing, why no such
forfeiture penalty should be imposed. The Commission will then issue a
forfeiture if it finds by a preponderance of the evidence that the
person has violated the Act or a Commission rule. As we set forth
below, we conclude under this standard that SkyPort and its affiliates
are apparently liable for forfeiture for their apparent willful and
repeated violations of section 214 of the Act and sections 25.119 and
63.24 of the Commission's rules.
10. The fundamental issue in this case is whether SkyPort and its
affiliates apparently willfully or repeatedly violated section 214 of
the Act and sections 25.119 and 63.24 of the Commission's rules by
consummating a pro forma transfer of de jure control of SkyPort's
international section 214 authorization and two earth station licenses
without required Commission approval. We answer this question
affirmatively. In particular, the transfers occurred when one member
of a small group of all-minority shareholders, who had already been in
de facto control of operations, acquired the de jure ownership
interests of all the other group members pursuant to a shareholder
reorganization agreement without obtaining required Commission
approval. Based on a preponderance of the evidence, we therefore
conclude that SkyPort and its affiliates are apparently liable for a
forfeiture of $3,000 for willfully or repeatedly violating section 214
of the Act and sections 25.119 and 63.24 of the Commission's rules.
A. Unauthorized Transfer of Control
11. In both the September 24, 2007 section 214 Application and the March
28, 2008 LOI Response, SkyPort and its affiliates claim that, from the
outset in August 2006, Kubbernus had complete de facto control of
Balaton, SkyPort and SkyComm under all of the Commission's indicia of
control: he was President and COB of Balaton and COB of SkyPort and
SkyComm; he was the sole source of working capital of Balaton; and he
had sole authority with respect to the Board, senior executives, major
management decisions and payment of major financial obligations. Thus,
SkyPort and its affiliates assert that the change in control resulting
from the reorganization in April 2007 was only de jure recognition of
what was already a de facto arrangement. SkyPort and its affiliates
suggest that this makes the failure to timely apply for approval of
the transfers less egregious than if there had been a substantial
change in actual control. Furthermore, SkyPort and its affiliates note
that they did not have regulatory counsel at the time and did not
understand that the reorganization affected transfers requiring prior
or subsequent approval because SkyPort remained the licensee, Balaton
remained the majority shareholder of SkyPort and SkyComm, Kubbernus
remained in day-to-day control and he continued to be compensated
based on SkyPort's performance rather than his equity-share.
12. We find that while the de jure nature of the change in control under
these circumstances may not have required applications for a
substantial change of control, it clearly did require applications for
a pro forma change, and the failures of SkyPort and its affiliates to
file such applications are willful and repeated violations of sections
64.24 and 25.119 of the Commission's rules. The claim that they
misunderstood the necessity for a pro forma transfer of control of the
section 214 authorization because SkyPort remained the licensee and
Balaton remained the majority shareholder does not insulate them from
enforcement action. Section 63.24(c) of the rules clearly states that
"a transfer of control is a transaction in which the authorization
remains held by the same entity, but there is a change in the entity
or entities that control the authorization holder." Here, the change
in Kubbernus'share of Balaton from 30 percent to 100 percent is a de
jure change requiring a pro forma application. Similar considerations
apply to the failure of SkyPort and its affiliates to file
applications for transfer of the two earth station licenses pursuant
to section 25.119.
13. The Commission's grant of the nunc pro tunc requests for authority to
transfer control of the international section 214 authorization and
the two earth station licenses were granted without prejudice to
enforcement action. The record demonstrates that SkyPort and its
affiliates apparently willfully and repeatedly violated section 63.24
of the rules by not filing within 30 days after the consummation of
the reorganization on April 11, 2007 a pro forma application for, and
notification of, the transfer of de jure control of SkyPort and its
international section 214 authorization from the Balaton minority
shareholders to Kubbernus. Similarly, SkyPort and its affiliates
apparently willfully and repeatedly violated section 25.119 of the
rules by not filing in advance of the consummation of the
reorganization on April 11, 2007 applications for permission to
transfer de jure control of each of SkyPort's two earth station
licenses from the Balaton shareholder group to Kubbernus as sole
shareholder.
B. Proposed Forfeiture
14. Section 503(b)(2)(B) of the Act authorizes the Commission to assess a
forfeiture for each violation or each day of a continuing violation,
up to a statutory maximum for a single act or failure to act. In
determining the appropriate forfeiture amount, we consider the factors
enumerated in section 503(b)(2)(D) of the Act, including "the nature,
circumstances, extent, and gravity of the violation and, with respect
to the violator, the degree of culpability, any history of prior
offenses, ability to pay, and such other matters as justice may
require."
15. The Commission's Forfeiture Policy Statement and implementing rules
prescribe a base forfeiture of $1,000 for an unauthorized pro forma
transfer of control. In consideration of the factors enumerated in
section 503(b)(2)(D) for establishing the forfeiture amount, there is
no other evidence before us to suggest that the base amount should be
adjusted in any way. Accordingly, we find that the base forfeiture of
$1,000 against SkyPort and its affiliates for the section 214
authorization and each of the two earth station licenses is
appropriate and we propose a total forfeiture of $3,000.
IV. ORDERING CLAUSES
16. ACCORDINGLY, IT IS ORDERED THAT, pursuant to section 503(b) of the
Communications Act of 1934, as amended, 47 U.S.C. S: 503(b), and
section 1.80 of the Commission's rules, 47 C.F.R. S: 1.80, that
SkyPort Global Communications, Inc., is hereby NOTIFIED of its
APPARENT LIABILITY FOR A FORFEITURE in the amount of $3,000 for
willfully or repeatedly violating sections 25.119 and 63.24 of the
Commission's rules.
17. IT IS FURTHER ORDERED THAT, pursuant to section 1.80 of the
Commission's rules, within thirty days of the release date of this
NOTICE OF APPARENT LIABILITY, SkyPort Global Communications, Inc.
SHALL PAY the full amount of the proposed forfeiture or SHALL FILE a
written statement seeking reduction or cancellation of the proposed
forfeiture.
18. Payment of the forfeiture must be made by check or similar instrument,
payable to the order of the Federal Communications Commission. The
payment must include the NAL/Acct. No. and FRN No. referenced above.
Payment by check or money order may be mailed to the Federal
Communications Commission, P.O. Box 979088, St. Louis, MO 63197-9000.
Payment by overnight mail may be sent to U.S. Bank - Government
Lockbox #979088, SL-MO-C2-GL, 1005 Convention Plaza, St. Louis, MO
63101. Payment by wire transfer may be made to ABA Number 021030004,
receiving bank Federal Reserve Bank of New York, and account number
27000001. For payment by credit card, an FCC Form 159 (Remittance
Advice) must be submitted. When completing the FCC Form 159, enter the
NAL/Account number in block number 23A (call sign/other ID), and enter
the letters "FORF" in block number 24A (payment code type). SkyPort
will also send electronic notification within forty-eight (48) hours
of the date said payment is made to gerald.chakerian@fcc.gov.
19. The response, if any, to this NOTICE OF APPARENT LIABILITY FOR
FORFEITURE must be mailed to Hillary DeNigro, Chief, Investigations
and Hearings Division, Enforcement Bureau, Federal Communications
Commission, 445 12th Street, S.W., Room 4-C330, Washington, D.C. 20554
and must include the NAL/Acct. No. referenced above.
20. The Commission will not consider reducing or canceling a forfeiture in
response to a claim of inability to pay unless the petitioner submits:
(1) federal tax returns for the most recent three-year period; (2)
financial statements prepared according to generally accepted
accounting practices (GAAP); or (3) some other reliable and objective
documentation that accurately reflects the petitioner's current
financial status. Any claim of inability to pay must specifically
identify the basis for the claim by reference to the financial
documentation submitted.
21. Requests for payment of the full amount of this Notice of Apparent
Liability for Forfeiture under an installment plan should be sent to:
Chief Financial Officer - Financial Operations, Federal Communications
Commission, 445 12th Street, S.W., Room 1-A625, Washington, D.C.
20554. For answers to questions, please contact the Financial
Operations Group Help Desk at 1-877-480-3201 or Email:
ARINQUIRIES@fcc.gov.
22. IT IS FURTHER ORDERED that a copy of this NOTICE OF APPARENT LIABILITY
FOR FORFEITURE shall be sent by certified mail, return receipt
requested, to Robert D. Primosch, Wilkinson Barker Knauer LLP, Counsel
for SkyPort Global Communications, Inc., 2300 N Street N.W.,
Washington, D.C. 20037.
FEDERAL COMMUNICATIONS COMMISSION
Hillary S. DeNigro
Chief, Investigations and Hearings Division
47 U.S.C. S: 214; 47 C.F.R. S:S: 25.119, 63.24.
See 47 U.S.C. S: 214(a).
47 C.F.R. S:S: 63.12, 63.18. Certain kinds of applications, including the
one at issue here, are subject to streamlined procedures under these
provisions. Cf. section 63.03 on streamlined procedures for domestic
section 214 authorizations. 47 C.F.R. S: 63.03.
47 C.F.R. S: 63.24.
See 47 C.F.R. S: 63.24(e).
See 47 C.F.R. S:S: 63.24(f)(1)-(f)(2).
See 47 C.F.R. S: 63.09(b). Cf. 47 C.F.R. S: 63.03, note 1, regarding
domestic section 214 authorizations.
See 47 C.F.R. S: 63.09(b).
See 47 C.F.R. S: 63.24(c).
See id.
47 C.F.R. S: 63.24(d). Note 1 states:
The factors relevant to a determination of control in addition to equity
ownership include, but are not limited to the following: power to
constitute or appoint more than fifty percent of the board of directors or
partnership management committee; authority to appoint, promote, demote
and fire senior executives that control the day-to-day activities of the
licensee; ability to play an integral role in major management decisions
of the licensee; authority to pay financial obligations, including
expenses arising out of operations; ability to receive monies and profits
from the facility's operations; and unfettered use of all facilities and
equipment.
See also 2000 Biennial Regulatory Review, Report and Order, 17 FCC Rcd
11416, 11419 n. 18 (2002) (describing these factors as indicia of "de
facto control"). Note 2 to section 63.24(d) lists several types of
structural business changes that are presumptively pro forma, some of
which are comparable to the transfer here involving Balaton and SkyPort.
See 47 C.F.R. Part 25.
See 47 C.F.R. Part 63.
See 47 C.F.R. S: 25.119.
See 47 C.F.R. S: 63.24.
See 47 C.F.R. S: 25.119 (d)-(f).
See 47 C.F.R. S: 25.119(f).
See 47 C.F.R. S: 25.119(b).
Public Notice, Report No. TEL-01139, DA 07-1879 (rel. April 25, 2007)
(File No. ITC-214-19990211-00083; grant of authority).
Public Notice, Report No. SES-00981 (rel. Nov. 11, 2007) (File No.
SES-T/C-20070919-01298; grant of authority for E00361); Public Notice,
Report No. SES-00981 (rel. Nov. 11, 2007) (File No. SES-T/C-2007092001301;
grant of authority for E050044).
See Letter from Robert D. Primosch, Wilkinson Barker Knauer LLP, Counsel
for SkyPort Global Communications, Inc., to Gerald Chakerian, Attorney
Advisor, Investigations and Hearings Division, Enforcement Bureau, Federal
Communications Commission, dated March 28, 2008 ("March 28, 2008 LOI
Response") at 2 (see infra paragraph 8 and note 30, regarding the Letter
of Inquiry issued February 27, 2008). See also Letter from Robert D.
Primosch, Wilkinson Barker Knauer LLP, Counsel for SkyPort Global
Communications, to Marlene H. Dortch, Secretary, Federal Communications
Commission, re: ITC-214-19990211-00083; ITC-T/C-20060407-00244, dated
September 24, 2007 ("September 24, 2007 Section 214 Application"), at Ex.
F.
See March 28, 2008 LOI Response at 3.
On April 7, 2006, SkyPort timely filed applications for Commission
approval of the transfers of the section 214 authorization and two
licenses affected by the Balaton acquisition, which were duly granted in
August 2006. See Public Notice, Report No. TEL-01055, DA 06-1614 (rel.
Aug. 9, 2006) (File No. ITC-214-19990211-00244; grant of authority);
Public Notice, Report No. SES-00845 (rel. Aug. 8, 2006) (File No.
SES-T/C-20060407-00592) (grant of authority for E000361); Public Notice,
Report No. SES-00845 (rel. Aug. 8, 2006) (File No. SES-T/C-20060407-00591;
grant of authority for E050044).
See March 28, 2008 LOI Response at 2.
See March 28, 2008 LOI Response at 2; September 24, 2007 Section 214
Application at Ex. F. The rights and duties of the shareholders were
originally governed by a Memorandum of Understanding dated August 28,
2006, shortly after Balaton acquired SkyPort. The growing de facto role of
Kubbernus, however, was not formally set forth in full detail until an
Amended and Restated Memorandum of Understanding signed on January 19,
2007. In this document, the five Balaton shareholders further agreed,
inter alia, that Kubbernus would be responsible for managing the
day-to-day affairs of SkyPort, but that he would notify the others in
advance if a contemplated transaction would dilute their holdings or their
potential returns from that investment. See March 28, 2008 LOI Response at
4, Attachment A, Part 1, p. 5.
See March 28, 2008 LOI Response at 2-3; September 24, 2007 Section 214
Application at Ex. F.
Public Notice, Report No. TEL-01206, DA 07-4612 (rel. Nov. 15, 2007) (File
No. ITC-T/C-20070927-00392; grant of authority).
See supra note 20.
Letter from Trent B. Harkrader, Deputy Chief, Investigations and Hearings
Division, Enforcement Bureau, Federal Communications Commission, to
Patrick Brant, President, SkyPort Global Communications, Inc., dated
February 27, 2008 ("LOI").
See March 28, 2008 LOI Response; Letter from Robert D. Primosch, Wilkinson
Barker Knauer LLP, Counsel for SkyPort Global Communications, Inc., to
Gerald Chakerian, Attorney Advisor, Investigations and Hearings Division,
Enforcement Bureau, Federal Communications Commission, dated June 6, 2008
("June 6, 2008 LOI Response").
See supra note 11.
See LOI at 2-3, Inquiries 5-7.
See March 28, 2008 LOI Response at 4, Attachments A and B; June 6, 2008
LOI Response at Supplement B.
47 U.S.C. S: 503(b)(1)(B); 47 C.F.R. S: 1.80(a)(1); see also 47 U.S.C. S:
503(b)(1)(D) (forfeitures for violation of 14 U.S.C. S: 1464).
47 U.S.C. S: 312(f)(1).
H.R. Rep. No. 97-765, 97th Cong. 2d Sess. 51 (1982).
See, e.g., Application for Review of Southern California Broadcasting Co.,
Memorandum Opinion and Order, 6 FCC Rcd 4387, 4388 (1991) ("Southern
California Broadcasting Co.").
See, e.g., Callais Cablevision, Inc., Grand Isle, Louisiana, Notice of
Apparent Liability for Monetary Forfeiture, 16 FCC Rcd 1359, 1362, P: 10
(2001) ("Callais Cablevision") (issuing a Notice of Apparent Liability
for, inter alia, a cable television operator's repeated signal leakage).
Southern California Broadcasting Co., 6 FCC Rcd at 4388, P: 5; Callais
Cablevision, Inc., 16 FCC Rcd at 1362, P: 9.
47 U.S.C. S: 503(b); 47 C.F.R. S: 1.80(f).
See, e.g., SBC Communications, Inc., Forfeiture Order, 17 FCC Rcd 7589,
7591, P: 4 (2002) (forfeiture paid).
47 U.S.C. S: 214; 47 C.F.R. S:S: 25.119, 63.24.
Id.
September 24, 2007 Section 214 Application at Exhibit F; March 28, 2008
LOI Response at 2-3.
March 28, 2008 LOI Response at 4-5, Inquiry 9; June 6, 2008 LOI Response
at 1-2.
47 C.F.R. S: 63.24(c).
47 U.S.C. S: 503(b)(2)(B); see also 47 C.F.R. S: 1.80(b)(2); Amendment of
Section 1.80(b) of the Commission's Rules, Adjustment of Forfeiture Maxima
to Reflect Inflation, Order, 19 FCC Rcd 10945 (2004). See 73 FR 44645
7/31/08 (new maxima). An unauthorized transfer of control is a continuing
violation that does not end until the Commission grants a transfer of
control application or other authorization. See Ensearch Corporation, 15
FCC Rcd 13551, 13554, P: 10 (2000).
47 U.S.C. S: 503(b)(2)(D).
See 47 C.F.R. S: 1.80; Forfeiture Policy Statement, 12 FCC Rcd 17087,
17113 (1997). The base forfeiture amount for an unauthorized substantial
transfer of control is $8,000. Id.
See 47 C.F.R. S: 1.80.
47 C.F.R. S: 1.1914.
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Federal Communications Commission DA 08-2457
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Federal Communications Commission DA 08-2457