Onetime billionaire from Southampton settles securities fraud charges

A onetime billionaire from Southampton has agreed never again to serve as an officer or director of a public company and to pay a $179,000 fine to settle securities-fraud charges, the Securities and Exchange Commission announced.

Robert F.X. Sillerman, former chancellor of Southampton College and onetime holder of an interest in Elvis Presley’s Graceland, was accused of defrauding investors in Function(x) Inc., according to a legal complaint filed in Manhattan federal court.

In agreeing to settle the SEC charges, Sillerman, 71, did not admit or deny the allegations against him, the agency said last week. The settlement still must be approved by the court.

Sillerman, who now lives in Hinsdale, New Hampshire, could not be reached for comment on Tuesday. His attorney, Chris Everdell, was not immediately available.

Separately, Sillerman has filed for Chapter 11 bankruptcy protection from his creditors, records show.

He founded and ran Function(x) until April 30, 2018. The company was an online publisher and entertainment company in Manhattan.

Function(x) shares traded on the Nasdaq and then the Over-The-Counter stock markets before the company closed in June 2018 after incurring losses, securities filings show.

“Between March and May 2017… Sillerman engaged in a scheme whereby he fraudulently raised money from investors and diverted offering proceeds for his own use,” the complaint states.

He allegedly transferred $500,000 from Function(x) to his personal bank account in March for what he claimed was a reimbursement of payments he had made on the company’s behalf. The money allegedly came from $4.8 million that had been raised in a public stock offering a month earlier.

Sillerman then attempted to conceal Function(x)’s financial problems by transferring $250,000 from his personal bank account to the company and transferring the money back after a quarterly reporting period had passed, according to the compliant.

“In late April and early May 2017, Function(x) continued to incur operating losses and was in a precarious financial state,” the complaint states. “If Function(x) failed, Sillerman would not be able to recoup his loans to the company.”

So he led a private stock offering that was supposed to fund Function(x)’s operations but allegedly was used to repay his loans, according to the complaint. He also “created the false appearance that the offering raised $10 million, when in fact it raised only half that amount,” the complaint states.

To entice investors, Sillerman allegedly claimed that two unnamed celebrities had agreed to invest $1 million each in Function(x). He falsified their signatures on documents, according to the complaint.

Later, Sillerman allegedly withdrew $1.3 million from Function(x)’s bank account without authorization and at least $550,000 of that money exceeded what the company owed him, the complaint states.

Function(x)’s auditor questioned the withdrawal, and a law firm began investigating. The auditor resigned in June 2017, writing a letter detailing Sillerman’s alleged illegal actions, which were made public six days later.

Before starting Function(x), Sillerman founded and ran SFX Entertainment Inc., a public company that operated the Beatport online music store and produced electronic music events, such as the Electric Zoo festival on Randalls Island in New York City.

SFX was valued at $1 billion in 2013, but filed for bankruptcy three years later. The Manhattan company exited bankruptcy with a new name, LiveStyle, and without Sillerman.

An earlier incarnation of SFX was sold by Sillerman to Clear Channel Communications in 2000 and eventually became concert promoter Live Nation.

Sillerman also was once a major shareholder of CKX Inc., which owned “American Idol” and the licensing rights to Elvis Presley and his Graceland estate, before being acquired by the private equity firm Apollo Global Management in 2011.

Among Sillerman’s creditors in bankruptcy court is “American Idol” host Ryan Seacrest, according to court documents.

In addition to concerts, Sillerman was a significant player on Broadway, providing financial support for Mel Brooks' musical comedies "The Producers" and "Young Frankenstein."

While Sillerman served as chancellor of Southampton College, a unit of Long Island University, the school garnered national attention for having Kermit the Frog from "Sesame Street" and The Muppets deliver the 1996 commencement address. The college was eventually purchased by Stony Brook University for $35 million.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.