In a ruling that could rock the broadcast industry, the Federal Communications Commission must decide whether RKO General, Inc. is morally qualified to run its 16 television and radio stations, which have an estimated market value of between $350 million and $500 million.
The FCC, which is expected to rule on the case this fall, is wrangling over whether RKO has been so tarnished by the sins of its corporate parent, General Tire and Rubber Company, that it is unfit to use the public airways.
General Tire and Rubber Co. has admitted to maintaining an illegal slush fund through dummy accounts and over-billing for political payoffs both here and abroad from 1971 to 1976.
A 1975 Securities and Exchange Commission report turned over to the FCC also found that General Tire was guilty of foreign tax evasion, illegal corporate falsification of reports to shareholders, filing false and incomplete reports to federal commissions, violating fiduciary relationships and bribing foreign agents and officials.
RKO argues that its 55,000 stockholders should not be unduly punished for its parent company's indiscretions.
"We think General Tire's character defects don't reflect whatsoever on RKO -- assuming General Tire activities are bad," said RKO attorney Herbert DeLynn.
"General Tire's activities seem to be minimal compared to other companies," said DeLynn, "Let's face it, a number of companies, including licensees, have engaged in illegal activities and you can't punish all of of them."
The SEC report was prompted by an exhaustive 18-month probe by Terry Lenzner, a former government attorney who investigated the Watergate case.
Lenzner had been hired by David Mugar, a wealthy Boston entrepreneur who heads the New England Television Corporation. Its members have been trying for nearly a decade to take control of RKO'S Boston television station WNAC, Channel 7.
In a formal filing to the FCC several years ago -- part of its challenge to RKO'S license on the Boston station -- Mugar's group argued:
"In light of the overwhelming evidence of fraud, bribery and corruption in the RKO corporate family now before the commission, as well as RKO'S own dissembling and lack of candor in this proceeding, there's no longer any doubt that RKO is unfit to serve as a broadcast licensee."
Mugar's strategy to get Channel 7 by discrediting the parent company appeared initially to have worked. In April 1978, a publicly battered RKO acquiesced and agreed to sell the Boston television station to Mugar's group for $54 million. However, the sale was blocked by the FCC, which by then was considering the moral problem.
RKO owns television stations in New York, Los Angeles and Memphis as well as Boston. It also owns 12 radio stations in New York, Boston, Los Angeles, San Francisco, Washington, D.C., Chicago, Memphis and Fort Lauderdale.
"We've been hindered in our business since the mid to late 1960s because of this case," said DeLynn, who also noted the FCC prevented RKO from buying KBTI-FM in Denver until the Channel 7 case is resolved.
And although Mugar notes that his group is now in a "no lose" situation, he concedes his meticulous planning may have backfired a bit. In fact he has had to temporarily switch sides on the matter.
The Boston group wants to obtain the station as quickly as possible -- a move that can only be achieved if the FCC rules that RKO is qualified to run the station and keep the license -- and thus be eligible to sell it to Mugar's group.
So to head off what Mugar sees as a detrimental scenario to everyone in this business deal, his group has taken the side of RKO. In filings before the FCC, his group now claims RKO is "meeting the bare minimum standards for a broadcast licensee," and is therefore qualified to hold and sell the license.