L.A. Confidential

- Jim Edwards

On Nov. 6, Tom Rubin, the former CEO of Focus Media, is scheduled to drive to downtown Los Angeles for a 1:30 p.m. appointment at the Federal Building. He will take the elevator to the seventh floor, walk down the hall to room 740, and sit in a green leather chair facing a wall of black marble at the far end.

A federal judge sitting in front of that wall will likely then send Rubin to prison. Prosecutors say he potentially faces spending the rest of his life there.

Rubin was convicted in June of defrauding Sears and Universal Studios out of as much as $35 million, all taken from the marketers' media-buying budgets in 1999 and 2000. Put simply, Rubin booked hundreds of media buys and, instead of passing on his clients' money to pay for them, he kept it. Rubin funneled the cash into his own accounts, paid off a massive tax bill and simultaneously pitted the unpaid media outlets against his furious clients.

The paper trail is so complicated that no exact reckoning of Rubin's scheme has ever been reached. At its peak, Focus, the media agency Rubin ran, owed $49 million in unpaid bills, according to the company's own accounts payable list. Additionally, Sears is suing its insurance company to get $20 million in compensation—the maximum payout on its policy. Either way, Focus Media ranks among the largest corruption cases in the history of American advertising.

So where's the money now?

"Most of it is gone," said Paul Stern, an assistant U.S. attorney who prosecuted the case. "Almost nothing was recovered."

At press time, Rubin was at home in Malibu, Calif., wearing an electronic ankle bracelet. After a Brandweek reporter drove along the winding Pacific Coast Highway to Rubin's weathered wooden beach house one afternoon this past August, a voice on the intercom politely declined an interview. Later, in a brief phone call, Rubin said, "We're not allowed to talk about it," and refused further comment.

It's a surprising development for a man who was once a power player in television, marketing and California political circles. In addition to Sears and Universal Studios, Rubin's past clients had included heavies like DreamWorks SKG, Geffen Records and Target.

If you're interested in the Focus Media story, you'll have to be prepared to sift through three separate lawsuits filed in civil, bankruptcy and criminal courts. There are more than 1,000 exhibits in the criminal case and the bankruptcy included more than 500 filings. The civil case generated so much paper it's become a storage problem at the Beverly Hills courthouse. Interviews with dozens of lawyers, friends, former colleagues and employees of Rubin and Focus Media produce a tale with all the ingredients of a Raymond

Chandler novel: A private detective—hired by a marketing client to spy on its own agency—who died before he could testify in court; an international money-laundering operation; Playboy chief Hugh Hefner's personal physician; the ex-wife of a former television game show host; and two members of Congress.

The astounding thread tying the whole case together is Rubin's apparent belief that he could use his political connections in Washington to make his legal troubles disappear. He planned to accomplish this by pushing Congress to change the bankruptcy law.

That tactic may seem like a long shot, but Rubin had actually attempted it once before. Now, mired in a new bankruptcy case, Rubin planned to try it again—even though, as Rubin paid a call to the Senate Office Building in 2005, he was already the subject of a sealed indictment.

"As stunning as everything else is, that's the piece of it that is incomprehensible to me," said Bruce Wessell, a lawyer for NBC, ABC and Paxson Communications, which litigated against Rubin after Focus failed to pay for ads booked on the two networks. "Someone who was under indictment at the time has the ability to hire a lobbyist in Washington and change the law."



Rubin Finds Focus

Tom Rubin first made a name for himself during the 1980s as a media buyer for Democratic candidates running in California. His former clients included ex-Gov. Gray Davis and the late L.A. mayor, Tom Bradley. At the time, Rubin ran a company called Tom Rubin & Associates, which later morphed into Focus Media. Rubin's company prospered, especially after adding Sears to its client list in the late 1980s. By the '90s, Focus had gravitated away from politics toward the marketing world and corporate media-buying. At its height, the firm handled a respectable $300 million in billings.

His employees and former colleagues describe Rubin, now 58, as a generous boss who paid staffers more than competing agencies and whose employees were uncommonly loyal. One former staffer, Kresta Finger, recalled an occasion in 1995 when Rubin flew into Chicago to visit the satellite office he'd set up after landing the Sears account. Rubin treated the whole agency to a day at the Arlington Park racehorse track, where everyone spent the afternoon watching the action from a private suite.

But Rubin also had his quirks. Finger recalled, for example, that on the day of his visit, Rubin never took off his sunglasses. Senior managers also had to inspect employees' cork bulletin boards just prior to Rubin's arrival at the office. Why? Rubin was adamant that no paper notes hang below the bottom edge.

"This is really important," Finger was told. "The junk in his world could not extend beyond the frame of the corkboard."

Outwardly, however, there appeared to be nothing amiss with the agency, which in January 1998 serviced Sears, DreamWorks and Universal Studios.

By 1999, cracks began to show. On Feb. 8, DreamWorks said it would only keep Focus on its $80 million account if the agency delivered a new media plan in 30 days. The agency faxed a plan to DreamWorks at 5:11 p.m. on March 11—one day late, according to a DreamWorks memo. The document was backdated, but DreamWorks didn't buy it. Focus was fired.

The troubles that began in February would only deepen. By October of that year, DreamWorks began hearing complaints from TV sales execs that its past media buys had not been paid for, according to prosecutors.

The pattern—Focus being fired, followed by the client hearing complaints about unpaid media bills—was to become familiar. The same thing happened at Universal Studios.

The film production company terminated Focus on Dec. 20, 1999. Two months later, Universal began to hear complaints from media outlets. The truth would prove far more disturbing: Universal had sent $12.5 million to Rubin's agency for its advertising, according to prosecutors, but Focus had paid out less than $1 million of it.



The Suspicions of Sears

The relationship between Sears and Focus began to deteriorate in 1998, shortly after Sears hired David Selby as vp-marketing services. As Selby settled into his new job, he received an internal memo, dated May 19, 1998, revealing that Focus was behind by $2.2 million on its Latino media buys. (All Sears' executives, including Selby, either declined comment via representatives or did not respond to calls for comment.)

Sears gave Focus a middling performance evaluation for 1999, according to an internal Sears document filed in court. In December 1999, Sears put the business into review and invited Focus to defend its account. The contenders reportedly included WPP's MindShare and The Media Edge, Young & Rubicam's former buying unit (now called mediaedge:cia). Sears found Focus' Dec. 7 pitch "unimpressive," according to prosecutors.

Despite an apparent erosion of confidence, Sears nonetheless wired the agency $50 million between Oct. 1999 and Jan. 31, 2000, to cover its media buys. As the weeks went by, and Sears' bills became 90 days past due, Focus came under siege from aggrieved TV stations around the country complaining that the agency had failed to pay. Many of them pulled all Sears' remaining schedule off the air—an extraordinary position for a marketer of Sears' stature.

NBC, for instance, sent this e-mail to all of its sales reps: "Urgent — Focus Media — Now Cash in Advance," it read. "No new orders can be accepted from FOCUS MEDIA unless the CASH is received before the order is recorded."

During this period, Rubin and his CFO, Tom Sullivan—who also awaits sentencing next month—were playing what was essentially an elaborate shell game. Court documents show that media outlets would call demanding payment, and Rubin and his staff would routinely assure them they were about to be paid if they could only wait a little longer.

Naturally, executives at Sears were worried. Finally, on Feb. 21, the company cancelled a $1.7 million payment to Focus, which included the agency's fee for that month.

In a heated phone call with Selby on March 9, Rubin railed bitterly against Sears for canceling Focus' payment. "When you stopped paying us, our credit lines shut down," Rubin said, according to the notes Selby took during the call. "You know what our float is . . . we live on that float."

The conversation deteriorated from there. "We are not going to be fall guys for no-fucking-body," Selby's notes quote Rubin as saying. "Think carefully what you are doing." Selby later said during a deposition that he found the conversation "bizarre."

Four days later, on March 13, Sears fired Focus and sued the agency.



No Savings, Just Loans

Sears' suit is notable in part because it demonstrates just how little the retailer actually knew about the scope of the disaster it would soon have on its hands. For example, even though the company was suing to recover the money it had paid to Focus, Sears could not determine exactly how much that amount was. "There are thousands of media outlets that Sears uses for advertising," wrote Sears' director of media services, Perianne Grignon, in a statement to the court. "It is impossible to quickly determine amounts that remain unpaid to each of them." Ultimately, Sears was only able to identify a mere $3.5 million as missing.

Sears did not realize that Rubin had already given Selby a clue to what he was doing during their tumultuous phone call of March 9. In that exchange, Selby had confronted Rubin about the money's whereabouts. "Who cares where it is?" Rubin retorted, according to Selby's notes. "What if I told you it was with the federal government?"

Prosecutors believe that statement was an oblique reference to Rubin's tax problems. Between February and April, Rubin had taken $11 million in checks from Focus to pay off his taxes, they alleged.

Rubin had such a large tax bill because, prosecutors say, he had been commingling his personal and business finances since 1996. In that year, Rubin took the first in a series of "loans" from Focus. Those loans eventually totaled $16.5 million, according to prosecutors. With the loans not paid back to the company, they counted as income. Rubin now owed taxes on the entire amount.

Rubin's defenders argue that borrowing the sums was entirely legitimate. The loans were "nothing out of the ordinary, normal business," said Geoffrey Mousseau, one of Rubin's attorneys. "In retrospect, people have taken things that are completely innocuous and innocent and because they have involved large numbers they have attached a name to these things—fraud, things like that."

Rubin was trying to sell his agency, his friends explained further, and the loans functioned as assets repayable to the company. If Focus was acquired, the argument went, the loans could be forgiven. The arrangement effectively gave Rubin his buyout fee in advance of actually being acquired. The loan structure merely lessened the tax bill, a frequent compensation strategy in private business.

In the end, Focus was never acquired.

But Focus still had funds in its coffers, and what Rubin did with that money is a little harder to explain. What's clear is that, on July 21, Rubin formally resigned as CEO. Then he proceeded to pay himself a $3 million severance fee, according to prosecutors who produced a copy of the check at trial. Immediately after, Focus retained Rubin as a "consultant," and gave him a $100,000 monthly retainer fee.



Splitsville

NBC, ABC and Paxson Communications went separately to a federal court and demanded that Focus be plunged into involuntary bankruptcy. On Oct. 27, 2000, a judge agreed and ordered Focus' accounts frozen. In his defense, Rubin consistently argued from the day of his March 2000 phone call with Sears' Selby, that he, not Sears, was the victim in the situation. At one point, Rubin filed a countersuit claiming that Sears' refusal to pay Focus' agency fee, coupled with the client instructing media outlets to stop dealing with Focus, constituted a conspiracy to put Focus out of business. And, Rubin insisted in court, because Focus continued to bill Sears for its services, the agency was the one who was owed money and therefore should never have been placed in bankruptcy.

The court didn't buy it. "Have you ever tried milking a cow after it's left the barn?" bankruptcy judge Kathleen March asked. "Very hard to do. Much better to keep the cows in the barn until we find out whose cows they are, wouldn't you say?"

The same day, according to the indictment, Rubin and Sullivan went into a check-writing frenzy: Sullivan cut himself a $168,552 severance check while Rubin took a $50,000 check, a $10,645 payment for his Citibank card and $75,000 for his American Express bill. Several employees received severance money ranging from $16,725 to $88,106.

All told, within a 24-hour period between Oct. 26-27, prosecutors say Rubin and Sullivan wrote about $1 million in checks to themselves, their colleagues, lawyers and family members.

One of the more noteworthy payments was a $50,000 check that went to Dr. Mark Saginor, who is described as "Rubin's physician" in the indictment. He is better known as the longtime friend and doctor of Hugh Hefner, the founder of Playboy. Saginor was known for prescribing appetite suppressants to celebrities and models, and he lived for a time at the Playboy mansion, according to Playground: A Childhood Lost Inside the Playboy Mansion, a book authored by Jennifer Saginor, the doctor's daughter. In a letter to the court, Saginor's attorney claimed that the $50,000 was for old medical bills and six days of treatment that Rubin flew him to Paris for, in October 2000.

Saginor's medical license was suspended in 2004 for failure to keep adequate patient records. He is currently the subject of a July 2006 accusation by the State Attorney General's office that in 2004 he molested one of his patients after inviting her to a photo shoot. Saginor, via his attorney, denied the accusation but declined further comment.

Once the checks were written, according to prosecutors, Rubin and Sullivan erased many of Focus' computer hard drives. That same evening, two men began carting boxes out of the office and placing them into a Jeep and a white truck in Focus' garage. The loading operation continued well past midnight.

Prosecutors would probably not have learned about this episode had it not been for Michael Fiddler, a private detective whom Sears had hired to conduct surveillance on Focus. Fiddler had videotaped the boxes being moved, prosecutors say. They would likely have heard more from Fiddler, too, but he died of a heart attack in 2005 before he could testify. A description of his surveillance, however, survived in a court document.

Nonetheless, Eliot Disner, one of the lawyers who represented Rubin in the bankruptcy, didn't give the tape much credence. "That's crap," he said. "It proved nothing. They weren't sure whether [it showed] a television or a computer, the vehicle was unclear."

A month later, in November 2000, Rubin bought a $4,655 ticket to Paris on Air France.



Meet Me at the Fairmont

Once Rubin landed in France, he divided his time between residences in Paris and St. Tropez owned by his girlfriend, Red Barris, according to multiple sources. Barris is better known as the ex-wife of Chuck Barris, the former host of the 1970s TV program, The Gong Show. According to court documents, Rubin next began moving hundreds of thousands of dollars through his and Barris' various bank accounts located in Israel, Rotterdam and Luxembourg. Barris, however, has not been accused of any wrongdoing.

Aside from paying his taxes and traveling, it's not entirely clear what Rubin did with the remainder of the Focus money. Rubin's defense filings in court, however, give a clue: he had "an admittedly very comfortable lifestyle in Europe." No details were offered.

Rubin's whereabouts became crucial in April 2001, when he failed to show up for a Los Angeles bankruptcy hearing, according to prosecutors. The Paris address he gave turned out to be the Italian Embassy. Rubin himself never really explained why he refused to show.

With Rubin still in France, Wessell, the lawyer representing NBC and the other networks who hadn't been paid, went through Focus' business records to find out just how much money they'd probably lost. Among the documents Wessell found was Focus' accounts payable list, dated March 31, 2000. The document innumerated hundreds of local TV stations—and each of them was owed thousands of dollars. On the last page is the grand total: $49 million, all 90 days past due.

Now convinced that this was far more than just a recalcitrant bankruptcy case, Sears and Wessell assembled a presentation to the U.S. Attorney's Office in Los Angeles.

The move got results: In December 2004, Rubin was charged in a sealed indictment. Not knowing exactly where he lived, the FBI set up a sting operation/effort to capture Rubin. The FBI had developed a list of people who had attended a party in Orange County linked to an unrelated case involving a bogus movie producer who was allegedly conning people out of investment money. Rubin had been at the party. So, according to Mousseau, they called Rubin up on the pretext of interviewing him about the movie producer.

Rubin agreed to meet them in June 2005 at the Grille at the Fairmont Miramar Hotel in Santa Monica, Calif., according to Ranee Katzenstein, another prosecutor. To Rubin's surprise, he was arrested on the spot.

After a two-month trial in June 2006, Rubin was found guilty on 25 counts of conspiracy, wire fraud, mail fraud and money laundering. Sullivan was found guilty on 27 counts. Mousseau—the lawyer originally retained by Rubin to fight the bankruptcy but who ended up being charged with hiding Focus' assets when he funneled $500,000 through his bank account—was found guilty of six counts of conspiracy and asset concealment.

Sears ultimately settled its unpaid bills with the TV stations for about $11.5 million, or 50 cents on the dollar, according to court documents. The company therefore effectively paid 150% of the initial price of its advertising. It is still fighting its insurer in court for compensation under its theft policy. Universal settled for about $1.7 million, or 20 cents on the dollar.



History, and the Hill

Still the question remains: What was Rubin thinking? Why did he apparently believe he could get away with such a large theft?

One possible answer, according to Wessell and others, is that Rubin had walked away from a similar situation in the mid 1980s, and may have believed he knew a loophole in the law that would allow him to do so again.

It turns out Rubin's practice of booking and then not paying for airtime was not new. Back in 1981, 42 TV stations became fed up with Rubin's alleged refusal to pay for ads, according to a story that ran in the Los Angeles Times on May 13, 1986. They forced him into involuntary bankruptcy; litigation lasted five years.

During that period, Rubin took what one might call a highly proactive course of action. Rather than merely fight the bankruptcy law, he decided to lobby Congress to have the law changed. Rubin described the 1984 effort in a court filing in 2001, saying that he had "contacted members of the United States Congress" to get the law changed. The politician who spearheaded Rubin's cause was Sen. Max Baucus (D-Mont.), according to Rubin's lobbyist. Mousseau, Disner and a UCLA bankruptcy law professor, Kenneth Klee, who is familiar with Rubin's history, all confirmed that the change was initiated by Baucus.

The revision Rubin advocated requires creditors seeking to push a business into bankruptcy to demonstrate that their cases are not the subject of a "bona fide dispute" that should instead be litigated in civil court. Previously, creditors did not have to meet that burden. The change furnished a clear benefit to the bankrupted party because opponents are considered equals in civil court, whereas bankruptcy courts give creditors' interests priority.

The change did not affect Rubin's case. But in 1985, Rubin won an appeal on another technical matter and, shortly afterward, his creditors ended their demands, according to the Times article. "My guess is that everyone agreed to drop everything and go back to work," said Wessell.

Through the 1990s, Rubin continued to maintain his political connections. For instance, Rubin and Barris have given $104,250 to Democratic political campaigns nationwide, according to an archive of Federal Election Commission records maintained by the Center for Responsive Politics.

After Rubin's 2001 bankruptcy case began, he gave $1,000 to Baucus, according to the FEC. In March 2002, Barris gave Baucus another $2,000, just eight months before Baucus once again urged another adjustment to the "bona fide dispute" law, according to the Congressional Record. A representative from Baucus' office conceded that the senator and Rubin had met "a handful" of times, then said that "Senator Baucus had very little to do with [preparing new] legislation" on the issue. The representative went on to explain, however, that Baucus "still supports the provision because he doesn't believe that the federal government should require someone to go into bankruptcy [unfairly] . . . This is a civil liberties issue."

As the Focus bankruptcy progressed, Rubin believed the court was implementing the 1984 law incorrectly, his lawyers argued in a court filing. Because Focus' debts were the subject of a dispute in civil court, Rubin felt that NBC, ABC and Paxson should not be able to litigate the same debts in bankruptcy court.

That court, however, rejected his argument.

So Rubin went back to Washington to talk to Philip Corwin, a lobbyist at Butera & Andrews. The trip proved fruitful: The law would be amended a second time. In essence, the new amendment stipulated that if a monetary dispute of any kind was being litigated in civil court, then creditors would have to stay in civil court to get paid.

The change was supported by Ed Royce, a Republican congressman from California's 40th district, who made a speech urging the amendment on April 18, 2005, according to the Congressional Record.

Contacted for comment by Brandweek, Royce's office issued a statement that read in part: "Congressman Royce did not sponsor any amendments to the Bankruptcy bill. The provision of the bankruptcy bill in question (Section 1234) originated in the Senate . . . The House made no amendments to the bill after it left the Senate. His written statement on the record, made on April 18, 2005, reflects the April 8, 2005 House Report on the bill."

The act containing the provision Rubin had pushed was signed by President Bush on April 20. Significantly, the section that Rubin had supported applied to bankruptcy cases that predated the new law—in other words, his.

It comes as a shock to many bankruptcy experts that Rubin was instrumental in both the 1984 and 2005 changes.

Kitt Turner, a partner at law firm Eckert Seamans in Philadelphia, said, "What I find surprising is . . . that somebody who is under indictment can get their phone calls returned by people in Congress." Of course, Congress could not have known about the sealed indictment.

After the law was changed, Rubin appealed to both the Ninth Circuit Court of Appeals and the U.S. Supreme Court, citing the change. He was rejected by both panels.



Nothing to Do But Wait

The deck on Rubin's beach house sits directly on the sand, offering fantastic views of the sun setting over the Pacific with the Malibu cliffs in the background. Near one of his deck chairs sits a ship's life belt with the words "True Love" painted on the side. If there was ever a time that Rubin needed rescuing, it would be now.

As a first time non-violent offender, Rubin could offer to pay back whatever money he has left and get a more lenient sentence. The money he gave to the IRS is gone; no one knows if he has kept any of the rest. He will be extremely lucky to stay out of federal prison.

Rubin's lasting legacy may only be future litigation. A straw poll of half a dozen bankruptcy lawyers found them evenly split as to what the Rubin-supported law means. Some believed it would make it easier for debtors to knock their creditors out of bankruptcy court. Others felt the change had little effect.

They only agreed on one thing: It would have to be argued in court.



THE FALL OF FOCUS



March 12, 1999: DreamWorks fires Focus. Seven months later, DreamWorks hears complaints about $500,000 in unpaid bills from the Focus era.



October 1999: Sears begins wiring $50 million to Focus to cover its media bills.



Dec. 1999: Sears begins receiving phone calls from TV stations about unpaid bills.



Dec. 20, 1999: Universal wires $12.8 million to Focus for ads. Eleven days later, Universal fires Focus.



Feb. 15, 2000: Universal hears Focus has not paid all its bills.



Feb. 21, 2000: Sears, after hearing complaints, refuses to pay Focus' fee.



March 1, 2000: Focus receives threats by TV stations to pull Sears' entire media schedule from the air.



March 9, 2000: Sears vp-marketing services David Selby has a "bizarre" phone call with Focus CEO Tom Rubin in which Rubin refuses to tell him where Sears' money is.



March 13, 2000: Sears fires Focus and sues the agency, claiming at least $3.5 million lost. Focus' accounts payable list shows

$49 million in unpaid bills.



April 2000: Rubin takes $10.3 million from Focus to pay taxes on unpaid loans.



July 2000: Rubin resigns as Focus CEO, receives $3 million in "severance" and a $100,000 per month consultancy fee.



Oct. 27, 2000: Court puts Focus into bankruptcy. Rubin writes $1 million in checks to himself and colleagues. Sears' private detective videotapes boxes and computers being removed from Focus' office.



June 20, 2001: Rubin gives $1,000 to Sen. Max Baucus.



July 19 2001: Rubin, now living in France, does not show up for a court hearing.



March 5, 2002: Red Barris, Rubin's girlfriend, donates $2,000 to Baucus.



Nov. 2, 2002: Baucus gives speech urging reform of involuntary bankruptcy law.



Dec. 17, 2004: Department of Justice asks judge for arrest warrants for Rubin.



2005: Rubin lobbies for change in bankruptcy law that he believes will help him fight his creditors.



April 14, 2005: U.S. Rep. Ed Royce urges change in involuntary bankruptcy law.



April 20, 2005: Bankruptcy Reform Act becomes law.



June 2, 2005: Rubin arrested in FBI sting.



June 19, 2006: Rubin found guilty at trial.



Nov. 6, 2006: Rubin to be sentenced.