| Written by Associated Press, on 05-03-2007 03:05 |
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Source Magazine LLC and affiliate Source Entertainment Inc. have filed for Chapter 11 bankruptcy after dishonest business practices by former management caused the hip-hop media outlet's advertisers to flee, according to court papers.
 The company, which publishes The Source, a monthly magazine devoted to hip-hop music and culture, also markets audio features, including cellphone ring tones and wallpaper, and produces promotional hip-hop music events, including the Source Awards.
Jeremy Miller, president and chief executive of Source Entertainment, said the company is struggling to recover from a cloud of negative publicity brought by former managers that misused company funds several years ago. The company filed for bankruptcy Friday in the U.S. Bankruptcy Court in Manhattan.
The company has been "damaged by the wrongful business practices of the companies' former management," Miller said in court documents.
Source founder David Mays and company president Raymond "Benzino" Scott were fired in 2006 after the magazine lost significant support from advertisers. Newsstand sales fell after The Source published a series of "unfavorable articles" about top recording artists, including Interscope Records Inc. artists Eminem and 50 Cent.
The company also issued bad checks to former employees and creditors, and abruptly stopped sending magazines to some 140,000 subscribers. Kable News Co., the company in charge of the subscription database for The Source, has entered a pre-bankruptcy claim of about $117,500 for lost subscriptions. Since 2002, magazine subscriptions have dropped by more than half.
Several salaries were also paid to people who did not work for the New York company, according to court papers.
This is not The Source's first trip to bankruptcy court. Three creditors filed an involuntary Chapter 7 bankruptcy petition for affiliate Source Enterprises Inc. last July, claiming the company owed them $562,693.
Source Enterprises' bankruptcy was converted to Chapter 11 in September. Friday's Chapter 11 filings for Source Entertainment and Source Magazine Chapter 11 case have been consolidated with that of Source Enterprises because the two companies have operated as a single entity since 2004, sharing bank accounts and records.
According to court papers, Source Entertainment was designed to operate separately from Source Enterprises and was created to hold and operate non-magazine assets, like copyrights.
Miller said that, since 2004, Source Entertainment and Source Magazine haven't "conducted any business that is distinct" from Source Enterprises.
LP Harrison III, an attorney for Source, said the company plans to "exit bankruptcy as a reorganized entity."
Some of the top unsecured creditors of the company include printer Gould Paper Corp. and catalog publisher Quebecor World Inc. (nyse: IQW - news - people )
Known as "the bible of hip-hop," The Source was once considered the premier hip-hop publication in the U.S. The company listed consolidated assets of about $1.3 million and liabilities of $35 million on Dec. 31.
The case number in the Manhattan bankruptcy court is 07-11243.
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Last update: 06-11-2007 07:53
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