@hypebot: PledgeMusic Board Issue Update: “Still pursuing a sale”

“Who’s that walking in these woods?  Why it’s Li’l Red Riding Hood”!

From “L’il Red Riding Hood” written by Ronnie Blackwell and performed by Sam the Sham & The Pharaohs

Hypebot reports that the PledgeMusic board of directors issued the following statement:

PledgeMusic is still pursuing a sale (which if it happens is likely to be via an administration) but has contingency plans for other insolvency processes if that is not achievable. [emphasis mine]

So what does this mean?  I still caution artists that these posts are not legal advance and to take advice from UK insolvency counsel, and the reader should bear in mind that not only am I not a UK lawyer but I’m not a bankruptcy lawyer either.  Based on a panel on the Pledge Music debacle I moderated at the Austin Bar Association with two Texas bankruptcy lawyers (who I’m sure would agree that you need to take advice from competent UK counsel) it sounds to me like the company means to pass through “administration” which is a UK insolvency procedure that can be similar to the US concept of liquidation bankruptcy as I understand it.  Hence the “…via administration” reference in the Pledge board’s statement above that I highlighted.

I think it is safe to say that anyone purchasing the Pledge assets likely would be unwilling to take them without relief from any obligations to make good on Pledge’s liabilities.  In the US, we have a concept of a “prepackaged” bankruptcy where there are buyers for a company’s assets from big assets down to computer monitors who are only willing to buy if they don’t get sued by the creditors.  This usually involves getting creditors to agree to low or no compensation with the court blessing the entire plan.  I’m not quite sure how this works in the UK since administration proceedings are not typically heard before judges as I understand it, but it sounds like it might be similar.  It’s also something that tends to happen most often in a reorganization bankruptcy where the company re-emerges as a whole having shed its debts, instead of a liquidation bankruptcy where the company does not re-emerge at all.

My bet is that everyone knows that an agreement of the creditors (if artists are indeed creditors) will never happen in this case so I would expect to see some muscle being exerted, assuming that the government doesn’t step in to block any administration action pending the completion of any civil or criminal investigations that may be ongoing.

My own curbstone assessment of the board’s statement is that they are going to try to pass Pledge through administration as fast as they can.  What that means for artists who were stiffed by the company is anyone’s guess at this point but clearly calls for heightened vigilance.

@HughPrincipal: The USMCA/CUSMA and Intellectual Property: Canada Wins

Hugh Stephens describes himself as an “informed layman” on IP issues based in Canada who makes the case for the US Congress ratifying the USMCA, an important trade agreement that will essentially replace NAFTA.

But–as Hugh notes, the legislation also includes important intellectual property (and copyright) agreements.  While Hugh’s post is subtitled “Canada Wins”, I’d suggest that if Canadian artists win, we all win.

In particular, Hugh makes the case that under USMCA, Canada is not required to adopt a version of the obscene US loophole for Big Tech in our Section 230 and also brings its copyright term into the international norm of life plus 70 across the board.   Given the recent drubbing that Big Tech lobbyists took in the Canadian Parliament, or in the Heritage Committee’s recent report, one does not get the impression that Canada will roll over on these points in the post-Cambridge Analytica world.

Hugh’s post is an excellent insight into the USMCA benefits, which I fear is about to get lost in the Washington schoolyard as we enter the election abattoir.  Here’s a teaser:

[L]et’s assume that ratification will now proceed. This is good news for Canada, since CUSMA/USMCA represents the best chance for relative trade peace with its largest trading partner. Canada fought a rear-guard action to preserve as much of the original NAFTA as possible in the face of Donald Trump’s declaration that the Agreement was “the worst trade deal ever made”. By and large, Canada succeeded and CUSMA/USMCA largely mirrors NAFTA with a couple of tweaks. However, victory is in the eye of the beholder and the new agreement, in Trump’s words, is now, “the most important trade deal we’ve ever made by far”. Among the areas where changes were made were in auto trade, where North American content requirements were raised, and intellectual property.

As I wrote at the time that CUSMA/USMCA was signed, the IP commitments that Canada made in the area of copyright were characterized by some as “concessions” but in fact they will bring significant benefit to Canada’s creative industries. Now a new paper has been published by the Macdonald-Laurier Institute on the IP provisions of the USMCA, incorporated in Chapter 20 of the Agreement. Written by lawyer Richard Owens, it is called “Who’s Afraid of the USMCA: Why the Intellectual Property provisions in the US Mexico Canada Agreement are good for Canada and its trading partners”.

 

Read the post on Hugh Stephens blog

Corrigendum:  I previously referred to Hugh Stevens as being a lawyer and he corrected me.  Sorry for the assumption.

Cookie Synchronization: Everything You Always Wanted to Know But Were Afraid to Ask

[This is a deep dive in an academic paper on some of the manipulations of your privacy data that  the Data Lords engage in routinely.]

User data is the primary input of digital advertising, fueling the free Internet as we know it. As a result, web companies invest a lot in elaborate tracking mechanisms to acquire user data that can sell to data markets and advertisers. However, with same-origin policy, and cookies as a primary identification mechanism on the web, each tracker knows the same user with a different ID. To mitigate this, Cookie Synchronization (CSync) came to the rescue, facilitating an information sharing channel between third parties that may or not have direct access to the website the user visits. In the background, with CSync, they merge user data they own, but also reconstruct a user’s browsing history, bypassing the same origin policy.

In this paper, we perform a first to our knowledge in-depth study of CSync in the wild, using a year-long weblog from 850 real mobile users. Through our study, we aim to understand the characteristics of the CSync protocol and the impact it has on web users’ privacy.

Read the post on ArxIV

The Two Years War: Google’s Polish Footprint Behind Poland’s Lawfare Against Artists over EU Copyright Directive

Poland has the distinction of being the first country to tip Google’s lawfare strategy against the Copyright Directive–sue to have the whole thing overturned by Court of Justice of the European Union, the “CJEU.”  The CJEU has, among other things, the jurisdiction to  hear an “action for annulment” filed by a EU government like NATO member Poland.

So who is in Google’s Polish footprint?  According to the Google Transparency Project, we find a few revolving door people.  Want to bet one of them knows how Poland came to file their case so soon?

Sylwia Giepmans-Stepien:  Former Junior Officer in Poland Ministry of the Economy

Google Poland 1

Marta Kokoszka: Project Manager, Polish Information and Foreign Investment Agency

Google Poland 2

Marcin Olender, Head of European Union and International Affairs Unit, Polish Ministry of Administration and Digitization

Google Poland 3

Big Door Keeps on Turning: Recent Departure from Google to (where else) Uber: Agata Waclawik-Wejman

Google 4

But it’s not just the old revolving door.  Google has made a substantial investment in Europe, but in particular at the University of Warsaw.

Google Europe

The Google Transparency Project describes Google’s investment in the University of Warsaw:

In early 2014, according to domain registration records, Google expanded its academic relationships in Europe further East, creating the Digital Economy Lab (DELab) at the University of Warsaw.

The program is described as an interdisciplinary institute funded by Google for the implementation of programs concerning the social, economic and cultural consequences of technology.

There is little public information about the extent of the partnership, or the amount of Google’s funding. However, the DELab website does offer some clues.

DELab’s director, Katarzyna Śledziewska, has a distinguished career in European policy and academic circles.  She also serves as a member of another Google-funded initiative, the Readie-Europe Research Alliance for a Digital Economy….

Stay tuned, this case may turn out to be an excellent vehicle to find out more about the extent of Google’s investments.

 

Guest Post by Hattie Webb: The day I broke into the PledgeMusic office (@hrdwebb)

hattie webb

I did something relatively gutsy and not entirely unprovoked, I broke into the offices of PledgeMusic.

On the evening of Friday 1st February 2019 I saw artists posting online that PledgeMusic was in financial trouble. A shock of adrenaline surged through me. For 20 months PledgeMusic had been stalling paying me £5.4K, the final instalment of the money I had raised on the PledgeMusic site to pay for the making and release of my first solo album ‘To The Bone’. PledgeMusic received 3.1K in commission of the total 17.3K of income of pre-orders. (The campaign commenced in December 2015.)

On Monday 4th of February, with a fire in my belly and after no response from the phone lines at PledgeMusic, I looked up their office address, took the train to central London and went for the first time to the PledgeMusic offices in Soho (a very beautiful office I might add). When I was told by reception that the office would not receive anyone, I asked where the toilets were. I then walked past the toilets, hiked up the stairs, opened the office door and plonked myself down on the communal sofa.

A PledgeMusic associate approached me and I said I would not leave until I could speak with the director.

I waited. Malcolm Dunbar was on the phone in the main boardroom, I could see him through the glass wall. There were about ten people working at their computers across the office space. The environment looked buoyant. I had a moment thinking, “maybe this crisis is not as bad as we thought?”. My hopes were short lived. Malcolm signed off on his phone call and ushered me in.

I said because no one will reply to me, I have had to come to them. I demanded they transfer payment or I would not leave the premises.

After 20 months of having faith in their explanations, after my many phone calls and zillions of emails sent since my campaign completed in June 2017, I needed to see action.

One might ask why I had not seen the red flags sooner. I’m a little ashamed to admit, it was mainly because of the calibre of the other artists that chose to work with PledgeMusic, artists I admired immensely. These artists had chosen this new creative home, leaving their previous old music business model abodes, to great success. How current it is in todays climate, that credibility can be so blinding it shrouds the real truth. I was gullible as to what the real reasons were for these extensive delays.

These are some of the many explanations I had previously received:

“at the moment finance are going through some procedural changes and they’ve got a slight backlog in payments”…”we’ve been experiencing delays due to PayPal terminating us using them as our payment provider” …”a backlog exists, and the process is manual because it’s been forced that way by the hand we’ve been dealt” …“we now work with a far inferior back up payment provider” …”it’s where we’re at and we’re doing our very best to catch up” …”the knock on effect has been more impactful than we ever imagined it would be” …”I’m very very sorry to hear you’ve still not received this payment. I did request it back when we last spoke and am trying to find out why that wasn’t paid” … “I understand this is in no way helpful to you right now, but it’s where we’re at and we’re doing our very best to catch up.” …”I’m planning another payment this week against the balance owed and we’ll get the full balance up to date in early Jan 2019.”

The list goes on.

I said, I feel like an idiot for believing it all. Not once were the real reasons mentioned.

I spoke with Malcolm for over an hour and part way through, Paul Barton joined. They said that there was no way they can pay me until new potential partners come on board as New York has stopped all accounting.

I asked to speak with New York.

Malcolm called the new financial director Jim on his mobile phone in New York (who had apparently been with Pledge for a month) and passed on the phone to me. I asked for an explanation as to why we all haven’t been paid. Jim suggested that I get a lawyer to write to PledgeMusic to ‘stake my claim’. I said, I may have been previously naive, but spending another few hundred pounds to pay a lawyer to send a letter to sit at the bottom of an ever increasing pile was not something I intended to do.

I said I have actually been an ally and champion of PledgeMusic because of what they previously stood for. Their mission statement being that “PledgeMusic is dedicated to bringing innovative artists and passionate fans closer together than anywhere else…by giving artists a platform.” I know many extraordinary artists who haven’t had support from labels, who have taken the bull by the horns and with their bare hands, created, funded and released incredible albums with the support and platform of PledgeMusic.

I told them that eventually I had to get a loan for the amount of money owed to me by PledgeMusic to pay my team, print my cds, merch and to post them all out. I said that I only hope that this can be brought to a righteous place. That we all receive our rightful payments, raised with blood sweat and tears (truly) and to restore the belief that bands and fans had in them. That the level of transparency in their communications, particularly now in a challenging time, will shape how each of them individually and as a team are seen in this industry and in the world. How important is your word and code of honourability in life? To me, it is everything.

Paul said that the reason they have stopped answering my messages is that they had run out of things to say. I said there’s always something to say, even if it is to take responsibility for their current position and reiterate their intentions. I also said that when the public statement was sent out to press on Friday, how much it would have meant to all who had signed up with them, to have received an email illuminating us about the situation, versus us randomly reading about it online. I think we deserved that level of consideration. Surely there was one person in that office that could have been allocated that essential task? Or were the artists still a thing very low on the list of importance when it came to their music business model? This certainly didn’t fit their mission statement.

Malcolm and Paul said that it has been horrendous for them too, they looked deeply disheartened that so many artists are going through this and said that they personally have received a lot of abuse. I am sorry for this, no one should have to put up with abuse, but I truly believe that with more transparency, it could have been avoided.

They told me about their plans to have new investors and pay everyone by April. I asked directly…at this point, why would anyone have faith in their company name even if they do get bailed out? They said it would be the same platform with a complete rebrand. Plus that the artist’s money would never actually go to the PledgeMusic bank account, only the commission.

But it wasn’t enough for me without an explanation. I asked them how long the financial crisis has been going on at PledgeMusic? They said over a year. I asked them why they have prime real estate in the center of Covent Garden London as their offices (next to the very elegant private members club, ‘The Hospital Club’), particularly throughout the time they’ve been in financial trouble and whilst they are avoiding paying artists? I said this is not a good use of the money! I asked if there were some offices in Croydon or Staines, out in the suburbs they could have moved to? I didn’t mean to be condescending. We as artists had not been part of the conversation with how our money was spent. They both agreed and said those decisions came from New York.

They also said that the whole finance team had been fired due to disastrous and disorganised accounting.

Shockingly, they said that many of the PledgeMusic employees had been asked to max out their personal credit cards to help the cash flow.

They said that they had been financially sunk by the USA division of the company. Wrecked by the rebranding costs and an outrageous ambitiousness to compete with Spotify. Who really knows where the money went, but the money was gone.

I asked why someone hadn’t flagged this up sooner and reigned in spending money on fluff? Was this a trailblazing music industry model or just the same scenario swaddled up in community soaked language?

For someone like me who has also been through the sometimes deeply disheartening sausage factory of being signed to a major label, someone who has been financially and emotionally rogered by both major artist management and my own personal management, I’m sorry to say, I believed it. (I say all of this knowing I have been very lucky with the chances I have been given too, believe me.)

I laid it out that if they don’t reply to emails and now that their phone line is down, how can I trust their word that they will communicate with us moving forward? I have had the wool pulled for too long. What will happen if I walk out of this office, will I ever hear back from them again? They gave me both of their private mobile phone numbers.

When I left that day, I noticed their plastic ‘PledgeMusic heart-logo placard’ on the side table in their office. As I stepped outside onto the Soho street, there was a dark shadow where it had once been positioned on the outside main wall. It was an odd feeling, as if they didn’t want it to be known they were still there in residence.

(Side note: that night, I went to see Steve Ferrone play at the 606 with Hamish Stuart, it seriously kicked butt and was a welcome and joyful distraction.)

(Second side note: In December 2018 I did receive 1.5K of the amount owed, perhaps after my increasingly pressurising emails.)

Mostly, after the initial shock, at this point I feel sad to think of all the music, of the artists and their lives that have been detrimentally affected by PledgeMusic’s actions or lack there of. I know business is not a straight line, but for many, this situation is hugely more difficult than the shabby hand I have been served. Because my release was back in 2017, I was able to honour every one of the 524 orders of my album and merchandise that friends and followers had purchased, pre-investing in my album, before this shutdown.

Not everyone has had the chance for their work to see the light of day because PledgeMusic has a claim on it. There are also many people who have made purchases directly with PledgeMusic and haven’t received any merch. Most have had no response from PledgeMusic about the return of their money.

I am eternally grateful for those that invested and travelled with me on the journey of creating and releasing my record and for the extraordinary team of sound engineers, artists and collaborators I worked with. I had the time of my life making it.

I do feel heavy hearted that many artists with so much to contribute to this crazy world, have had a previously effective grass roots route destroyed. The connective tissue between creating and having the support to send that out into the world is an essential part of being an artist, there is a circular nature to it. The ability and freedom to fund and create has been savagely shredded by big business greed and a continuing lack of respect for the very artists that make it possible for the business side to exist. Not a new music business model as advertised.

Since all of this has happened, a community has been forming of artists affected in the fallout. For this I am also grateful.

At the heart of the matter, the passion at the core of creativity shall never be diminished! We are immensely blessed to have the freedom to express our truth in whatever form we feel, that is ever powerful.

As my friend Francesco Mastromatteo said “We work with something we can not see and we can never possess. Sound is simply always free and has an endless value”.

On Friday, I read that the sale had fallen through and that bankruptcy was inevitable for PledgeMusic. I read ‘the sale of which would be used to pay artists’. I immediately texted Paul and Malcolm to find out how these so called ‘remaining assets’ will be divided. Is it not the righteous decision at this final stage, to communicate directly with the artists with what will happen moving forward?

I have not heard back since.

[We’re honored that Hattie gave us permission to post her account of her personal experience with PledgeMusic.  You can find Hattie at HattieWebbMusic.com and her Twitter is @hrdwebb. Reading Hattie’s account is enough to make you stand up and salute as she banishes the ennui of learned helplessness to the dustbin of history.  I recall a Leonard Cohen lyric from “Everybody Knows” that could apply to the music business as a whole, more so with each passing day:

“Everybody knows that that boat is leaking, everybody knows that the captain lied….”]

@CMU Confirms: The Arlen Case Proves Again that On the Internet, It’s Always Someone Else’s Fault

DOROTHY

If you were really great and powerful you’d keep your promises!

from The Wizard of Oz, written by Noel Langley & Florence Ryerson and Edgar Allan Woolf, adapted from the book by L. Frank Baum

In an interesting twist, Complete Music Update has actually criticized songwriters when Spotify wasn’t sued.  (Or at least wasn’t sued yet.)  Yes, it’s true; sometimes man really does bite dog.  In that post about the recent case of SA Music LLC and Harold Arlen Trust LLC v. Apple, Inc., Amazon.com, Inc. and others, CMU may be demonstrating exactly what their motivation was behind attacking music publishers in their most reason consulting pitch.

Harold Arlen was a very successful songwriter, probably most famous for Somewhere Over the Rainbow from The Wizard of Oz.  (That song is not included in the lawsuit, probably because the studio owns the copyright.)

The Arlen case turns on a fundamental point:  The government won’t save you with a compulsory license for the reproduction of a sound recording if you didn’t have the rights in sound recording in the first place.  Simple, simple stuff.

But as it turns out, some of the services including CMU’s beloved Spotify, did get a fake license for at least some of Mr. Arlen’s songs at issue by sending an address unknown notification to the Copyright Office claiming that the Copyright Office records did not identify the owner of the song copyright.  (A complex process spelled out here.)

And the Arlen plaintiffs provide a handy guide to finding the song copyright owner in the Copyright Office records in an exhibit to their complaint that lists the copyright registration numbers for their works.

You know–the kind of information you would find if you actually looked up the works concerned as is required to get the address unknown fake compulsory license and which each service represented that they did when the filed a notice.  (Apple never filed these notices.)

Take Stormy Weather, for example, one of the classic Arlen songs.   A quick search of the handy SX Works NOI Lookup database reveals that both Google and Spotify filed “address unknown” NOIs for the song.

Stormy Weather

And yet–here it is in the Arlen complaint, along with that pesky copyright registration number:

Stormy Weather Complaint

The presence of the copyright registration number shows that Mr. Arlen was in the Copyright Office public records and the format of the number shows that the registration was filed before 1978 for a published work.

And let’s make a side bet that you can rinse and repeat for each song in the complaint–all of them will be subject to an address unknown filing and all of them will have been registered.  Which means that whoever was filing the address unknown NOIs on the Copyright Office didn’t bother to look–and it also means that all of those improperly filed NOIs are invalid, and that’s before you even get to the question of whether the sound recordings were properly licensed.  (And because invalid, neither group is subject to the new MMA safe harbor.)

How could that be you say?  These are the cognoscenti of the modern world at Google, Amazon, Spotify, et al.  How could they have made this boneheaded mistake?

And although it’s not part of the lawsuit currently being heard before Judge John F. Walter in the California Central District, Mr. Arlen’s classic Somewhere Over the Rainbow from The Wizard of Oz also was too difficult for some services to findthey sent in address unknown NOIs on that song, too.

Somewhere Over the Rainbow

There’s actually quite a simple answer that may explain why the services made these mistakes.  The Copyright Office online lookup only covers registrations after January 1, 1978.  Registrations before 1978–you know, the core of American popular music and the bulk if not all of Mr. Arlen’s catalog–pretty much require a manual lookup.  Which means that the Reading Room of the Copyright Office would have been a very, very busy place for a while there with gnomes from the services or their licensing companies looking up pre-78 copyright registrations to identify the copyright owner.  Or they could just have relied on the licensing services that Amazon and Spotify used to do their clearance work, both of whom bray about the breadth of their respective databases.

Or you could just lie when you represent on your NOI filing that you have searched the Copyright Office records but were unable to locate the copyright owner.  These filers attest that they have looked for the copyright owner in the Copyright Office public records as required in the filing instructions:

In the case where the Notice will be filed with the Copyright Office pursuant to paragraph (f)(3) of this section, the Notice shall include an affirmative statement that with respect to the nondramatic musical work named in the Notice of Intention, the registration records or other public records of the Copyright Office have been searched and found not to identify the name and address of the copyright owner of such work.

This language is fixed in the government spreadsheet template for each NOI served on the Copyright Office.   Each service filing the NOI has marked “YES” in that column for each song in the notice.

Why is this a problem?  Just ask Martha Stewart what happens when you make a false statement to the government.

It has long been my contention that the services violated the law on a massive scale but no one seems too interested in finding out.  Mr. Arlen’s lawsuit or one like it may provide just the vehicle to find out where the fault lies for these apparently false filings.

And guess what–the new Music Modernization Act safe harbor won’t protect the services on this one, CMU’s whinging notwithstanding.  This is not a failing of the licensing system, this is the desire of the services to Do The Wrong Thing correctly.  It is a failure that highlights why whichever candidate is designated as the MLC should have new blood and not keep recycling the old.

CMU tells us:

Nearly all the streaming services have been sued at some point in recent years in the US for failing to pay all of the mechanical royalties that are due on the songs they are streaming. In most cases, this failure to pay was mainly the result of the woefully inadequate licensing system operated by the American music publishing sector.

Actually the failure to pay was mainly the result of failing…to…pay.  Ahem.

Technically a compulsory licence covers the mechanical rights in songs Stateside, so that the streaming services don’t need bespoke licences from each writer or publisher. [Not just “technically”…actually.]  However, they do need to send notices and payments to each rights owners of each song streamed for the compulsory licence to apply.

Because the streaming services don’t generally know what specific songs are contained in the recordings labels pump into their platforms – let alone who owns the rights in those songs – in some cases notices and payments were not sent.

“Some cases”?  Does 25% of the repertoire count as “some”?  Do tens of millions of “address unknown” NOIs count as “some”?

What the Arlen case helps us understand is that the services or their clearance companies sent address unknown NOIs on songs where the address clearly was known.  It also provides at least circumstantial evidence that the services may never have tried to identify the song copyright owner in the public records of the Copyright Office, even in cases where they knew the title of the song and the name of the songwriter and where the songs were classics that were very well known to music fans.

It also demonstrates that nobody was minding the store on the either the song side or the sound recording side of these services in their mad dash to get big fast and line their pockets while deflecting attention away from their own culpability.  And when something misfires as much as song licensing has–where services are not even using the available tools correctly–it definitely gives the lie to the licensing system being “woefully inadequate” because you can’t find what you don’t look for.

I think that the truth that Howard Arlen’s lawsuit may uncover is that we should disregard the iconic image that the media has created of Big Tech.  Once it became apparent that independent songwriters like David Lowery and Melissa Ferrick were prepared to sue to enforce their rights, things got out of hand and it was pretty clear from the way this was handled that these guys were just not that bright.

But pay no attention to the man behind the curtain because on the Internet it’s always someone else’s fault.

Another Loose End: PledgeMusic’s Non Profit Messaging But For Profit Motive

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.

Pledge Debenture

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?

facility agreement

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.

Pledge SPV

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.

Charged Accounts

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.

Bank Account Security.png

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?