FCC Enforcement Monitor ~ August 2018
Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:
- International Hotel Company Agrees to $504,000 Settlement for Overlooked Wireless License Transfers
- Media Bureau Fines AM Licensee for Years-Old Unauthorized Transfers
- Suburban Elementary School Busted as Pirate Radio Operator
Approval Needed: International Hotel Chain Settles with the FCC for $504,000 Over Unauthorized Transfers
The FCC recently entered into a Consent Decree with a global hotel company for violating the FCC’s rules governing transfers of control. The company admitted to transferring dozens of private wireless licenses without prior FCC approval in the midst of its multi-billion dollar acquisition of another international hotel group.
In addition to regulating the transfer of broadcast licenses, Section 310 of the Communications Act (“Act”) prohibits the transfer of control of a private wireless license holder without prior FCC approval. Under Section 1.948 of the FCC’s Rules, parties seeking consent to a transfer of control of such a license must first file FCC Form 603 and await Commission approval before completing the transfer.
At issue in this case were the transfers of 65 wireless licenses controlled by entities owned or operated by the acquired company. Unlike commercial wireless services such as wireless broadband, private wireless licenses are generally used for internal communications, like those associated with company operations or security. According to the late-filed transfer applications, these wireless licenses were used for “operational efficiency and safety of employees and guests” at the company’s various properties. Prior to the transaction, the acquired company’s employees controlled the use of the licenses as part of their regular operational duties. Though the day-to-day use of the licenses did not change as a result of the company’s acquisition, ultimate control of the licenses did.
In February 2017, several months after the deal was completed, the hotel company voluntarily disclosed the violations to the FCC, chalking up the missing applications to “administrative oversight … during a larger transaction.” By January 2018, applications for transfer of control of all 65 licenses were submitted to the FCC’s Wireless Bureau. Those applications remain pending.
To resolve the FCC’s investigation of the violations, the acquiring company entered into a Consent Decree with the Commission. Under the terms of the Consent Decree, the hotel company agreed to (1) admit liability for violations of the FCC’s unauthorized transfer rules; (2) develop and implement a compliance plan to prevent further violations of the FCC’s Rules; and (3) pay $504,000 to the United States Treasury.
Trust Issues: “Ridiculously Complicated” Estate Planning Leads to $8,000 Fine
The Media Bureau entered into a Consent Decree with the licensee of three Georgia AM radio stations to resolve an investigation into an unauthorized transfer of control of the station licenses.
Section 310 of the Act and Section 73.3540 of the FCC’s Rules prohibit transfers of control of broadcast licensees from one individual, entity, or group to another without prior FCC approval. In the case of full-power broadcast stations, parties must file FCC Form 315 applications and receive FCC consent before a transfer of control can be consummated.
The applications ultimately leading to the Consent Decree were filed with the FCC in March 2018, but the licensee’s problems began nearly two decades earlier when the licensee’s sole owner created an irrevocable trust and named two of his sons as co-trustees. That same day, the FCC approved the licensee’s acquisition of the Georgia stations. The following day, the licensee’s owner, functioning as de facto trustee of the irrevocable trust (and without his sons’ knowledge), transferred 90% of his equity in the licensee to the trust in the form of non-voting shares. When the station acquisition was consummated a few days later, the licensee failed to report the existence of the trust to the FCC and did not subsequently report it until earlier this year.
In 2010, the trust was divided into sub-trusts for each of the father’s six children—each of whom was then unaware that they were to serve as trustee of their respective sub-trust. Shortly before their father’s passing in 2013, the children assumed control of the overall trust (as trustees of the individual sub-trusts). They converted the trust’s stock in the licensee to voting shares and cancelled all other shares of licensee stock, resulting in a transfer of control of the licensee to the children as trustees of the trust. Continue reading →