If you had to summarize the now bankrupt PledgeMusic’s public face, you might say that they were all about the greater good of artists rather than making money.  In other words, the company showed the world a kind of do-gooder public face commonly found in non-profits.  But always remember that Pledge was not a non-profit, they were a for-profit company.  And as the facts start to surface, they were apparently very much a for-profit company.

Reviewing the PledgeMusic documents filed with Company House in the UK (where private companies file certain documents) we find a debenture, or loan document, filed by PledgeMusic.com Limited as borrower and Sword, Rowe & Company as collateral agent.  We know what a borrower is.  A collateral agent is usually a lender which takes on administrative responsibilities for a loan syndicate.

So I found that reference to be a little odd for a company that was scraping by on 15% of artist campaigns.  What was even stranger was the date of the loan:  February 12, 2019.

What was PledgeMusic doing borrowing money in February, mere weeks before it went into “administration” in the UK–roughly the equivalent of bankruptcy?  Who–besides the shylocks–would loan them money?

So who was in that loan syndicate?

PledgeMusic entities were both the borrower and a lender on the same loan, which by the look of the document was secured, which means whoever owns PledgeMusic SPV I, LLC was a secured creditor in PledgeMusic.com Limited and would at least arguably have a priority in bankruptcy.

The reference to “SPV” is very likely a company operating as a “special purpose vehicle” which is a way to shelter assets in the through-the-looking-glass bankruptcy rules.  As I understand it, SPVs can have a legal status as a subsidiary that makes its assets secure even if the parent goes bankrupt.  (There is, of course, the question  I don’t know the answer to of whether SPVs are recognized in UK insolvency law and administration.)

The debenture spells out that the lenders have a “first fixed charge” over assets of Pledgemusic.com Limited including a lot of bank accounts in both the US and the UK.  A “first fixed charge” looks to be something like a first position security interest, meaning that the lenders get their money back before anyone else.

This may be important if, as has been reported, Pledge failed to maintain a separate escrow account for the artists’ pledges and simply co-mingled all of Pledge’s money with the artists’ money.

But follow the next step:  By using the SPV method, it is possible that Pledge might try to extract the money from its own accounts to repay the loan that it made to itself (along with the other lenders in the syndicate) by foreclosing its security interest on its own bank accounts in which it co-mingled funds.

Of course, if the artists’ money was held in trust that the officers and directors breached, then the co-mingled funds didn’t belong to Pledge so couldn’t really be legitimately subject to a security interest as that portion of the funds shouldn’t be “standing to the credit of such accounts.”  And good luck sorting that one out.

Regardless of how all this turns out, the introduction of an SPV is a relatively sophisticated financing structure for a company like Pledge that leads one to think that someone was thinking about how all this would end up.  Whoever that someone was, they intended to be in the black and not in the red when the music stopped.

It seems like someone had a plan, and they had the plan because Pledge was very, very definitely a for profit effort.  I think that you really have to look at the entire situation skeptically until proven otherwise.  Because if they did not have a plan, then what explanation is there?