Following the money Where are the hundreds of millions a New York hedge fund pillaged from The Herald, The Sentinel and The Mercury News?

Denver Post building in Denver, Colorado. | David Shankbone / CC BY 3.0

By Julie Reynolds Martínez

The rebellion on April 6 by The Denver Post’s editorial board against the newspaper’s hedge-fund owners has spurred a national outcry, including front-page articles in The New York Times and coverage in The Washington Post. Finally, mainstream voices seem to get it that newspapers are a public trust, not an ATM for vulture capitalists. And they seem willing to consider the notion that newspapers are not endangered solely because the big, bad Internet made print obsolete. No, the public-trust function of newspapers is also endangered because greedy investors who care nothing for journalism are intentionally bleeding dry the newspapers they own.

A group of more public-spirited investors declared on April 12 that they hoped to buy and save The Denver Post. That will require the agreement of Alden Global Capital, one of the slimiest corporate villains of our time.

Alden Global Capital owns the Post. It also owns The Monterey Herald, The Santa Cruz Sentinel, the San José Mercury News, as well as hundreds of other newspapers and websites across the country, through its holding company Digital First Media. Under Alden’s direction, Digital First Media has been eviscerating newspapers at more than twice the national rate, driving the kind of mass layoffs The Denver Post’s newsroom experienced on April 9.

Since Alden took control of Digital First Media, the country’s second-largest newspaper chain, in 2011, DFM executives have eliminated a staggering two out of every three staff positions at its media properties.

Where has the money gone? That part of the scandal hasn’t yet been revealed in its entirety, but a lawsuit unfolding in a Delaware courtroom provides some damning evidence. Court records show that the vulture capitalists at Alden have bled at least $241 million in cash—plus many millions more in real estate—from Digital First Media. Meanwhile, Alden “borrowed” $248.5 million from newspaper workers’ pension funds, and had the newspapers take on $200 million in debt to finance its own investments.

Furthermore, court records bolstered by additional shoe-leather reporting reveal that the top executives of Alden Global Capital have rewarded themselves with tens of millions of dollars’ worth of prime real estate in Florida and the Hamptons for their personal enjoyment. They have also plowed hundreds of millions of dollars bled from their newspapers into non-journalistic investments across the United States and around the world, many of which are at best ethically questionable.

Let’s start with Alden cofounder and president Heath Freeman. While The Denver Post’s newsroom staff was being shrunk from 200 to 50 after Alden bought the paper in 2011, Mr. Freeman left his Manhattan penthouse and bought a $4.8-million, five-bedroom, five-bath waterfront mansion on two acres in East Hampton, New York. He also bought the pond next door. But the 3,500-square-foot residence apparently wasn’t enough of a mega-mansion for Freeman, who is now constructing a massive addition that appears to expand the house by perhaps a third.

Video of Freeman’s house at 161 E. Lake Dr., Montauk, from Skytography on Vimeo.

The purchase price of Freeman’s main house alone—not counting the pond and new addition—would be more than enough to pay all 25 of the recently departed Denver Post reporters for more than two years.

Thomas Peele, a Pulitzer Prize–winning investigative reporter for Digital First’s Bay Area News Group, recently checked out the property and even tweeted a photo of it. Peele describes the location as exclusive and isolated, facing “Lake Montauk, which is a vast harbor with access to Long Island Sound. There is a small airport about a mile away that offers access to Montauk to the rich and famous…. Across the street there are several private roads leading to mansions on hillsides near where Teddy Roosevelt camped with his Rough Riders after the Spanish American War. The east side of Lake Montauk is dotted with private marinas and boat clubs. Freeman’s house is among the largest on the three-mile-long road that ends at Long Island Sound.”

Freeman’s splurge follows in the footsteps of his Alden co-founder and mentor, Randall D. Smith. As I reported in The Nation last year, Smith’s acquisition of the Digital First chain and rapid sell-off of its real estate was quickly followed by his buying spree of Palm Beach, Florida, mansions at a cost of more than $57 million. All told, Smith picked up 16 properties, and that’s not counting his two sprawling Southampton spreads, valued by the local assessor last year at $8.7 million and $16.8 million.

Alden’s executives have become known as “vulture” capitalists, but a closer look at their record suggests they’re really more like wolves. To continue the metaphor, Alden doesn’t just feed off the carcasses of dying or dead businesses, it chases down weak members of the herd and kills them.

While some newspaper owners invest and diversify to keep their papers (and their civic obligations) alive, Alden gorges itself and then leaves its papers to die. According to industry insider Ken Doctor, Alden’s executives plan to feed for two to three more years—because the papers are still quite profitable—until all Digital First newspapers are shut down or someone comes along to buy what little remains.

According to Securities and Exchanges Commission records and Alden’s own admission in recent court filings, Alden bled cash directly from the Digital First chain to take advantage of the Greek debt crisis, in 2016 shuffling more than $73 million from the news chain into a Cayman Island account that purchased Greek sovereign bonds. If we look at how fellow hedge funds are handling a similar debt crisis in Puerto Rico, it seems likely Alden’s investment wasn’t helping the Greek economy.

Alden was sued last month by another hedge fund, Solus Alternative Asset Management, a minority shareholder in Digital First Media; Solus claims that Alden hid financial information. The lawsuit further alleges collusion between Alden and Digital First’s executives—most of whom have close ties to Alden—to divert millions into investments unrelated to media. While Alden admitted the investments took place, it denied the collusion or that it “purposefully obfuscated” its activities.

In a legal response to the suit, Alden admitted that Digital First set up subsidiaries that spent hundreds of millions of the news chain’s dollars to invest in Alden-related funds. Besides the Greek debt, these include $158 million invested in the Memphis-based Fred’s pharmacy chain, plus $10 million invested in the Cayman Island-based Alden Global CRE Opportunities Master Fund LP. Months later, that fund bought an $80 million chunk of Homex, a bankrupt developer charged by the Securities and Exchange Commission with committing the biggest real-estate fraud in Mexican history.

Digital First even invested $248.5 million of its newspaper employees’ pension dollars in two Alden funds, including another based in the Cayman Islands. After the employees complained, the company began moving the pensions into other investments.

Investing in scandal

While no evidence has surfaced yet that Alden’s other investments were directly financed by newspaper layoffs, the investments nevertheless resemble a caricature of capitalism at its most greedy and amoral. In Russia, for example, Alden has invested in a company facing criminal charges for further polluting Chelyabinsk, a city in western Siberia that is among the most polluted places on earth, thanks to nuclear waste and toxic run-off. The company in question is Mechel, a Russian energy and steel firm; Alden owned $1.9 million worth of Mechel stock as of January 2017. Mechel is charged with failing to install clean air controls. But the company reportedly has the advantage of highly placed friends. The firm’s prosecution, reported Moscow-based journalist John Helmer, coincided with “lobbying by well-known names around President Vladimir Putin to save Mechel.”

Alden dabbles in corruption-tainted firms in Brazil as well. Starting in 2016, it held a major stake in Brazil’s state-run energy firm, Companhia Energética de Minas Gerais, also called Cemig. That’s around the time police began investigations into what would become Brazil’s largest government-corruption scandal, Operation Car Wash, which tanked the country’s economy and left thousands of skilled workers in the lurch. “Police suspect politicians were bribed to use their influence to help companies that did business with the power companies,” Reuters reported.

Alden also made sure not to be left holding the bag when coal giant Peabody Energy, one of America’s worst polluters, faced bankruptcy in 2013. Peabody tried to leave some 20,000 of its workers without pensions and retiree health care, a plot that was averted with an undisclosed settlement Peabody undertook in a failed attempt to avert bankruptcy. The bankruptcy itself was suspect, and one critic in the financial press noted that “the bankruptcy settlement reserved much of the proceeds to…a core group of creditors and Peabody management.” In late 2014, more than two years before a judge approved the settlement, Alden acquired 1.2 million shares of Peabody Coal. The Environmental Protection Agency, seven Native American tribes, and others filed pollution damage claims against Peabody that totaled billions of dollars, but the final bankruptcy settlement in March 2017 magically reduced these billions to a mere $43 million of pay-outs. Six months later, Alden divested its $38.94 million worth of Peabody shares.

It is these actions that are driving newspapers such as The Herald, The Sentinel and The Denver Post into ruin. Heath Freeman and Randall Smith have no business owning newspapers; their track record makes it abundantly clear that Alden Global Capital has zero interest in the news business, much less the informed citizenry that journalism sustains.

On April 12, a group of Colorado investors announced they had raised $10 million in pledges in hopes of buying The Denver Post from Alden. A number of concerned citizens and even public officials expressed their support for the move.

There are now murmurings of local investors from other regions hoping to buy Alden-owned papers. A couple of years ago, one such effort to buy the Sentinel and the Herald fell through when Alden turned down the offer at the last minute.

Still, some analysts say Alden will sell if the price is right—that is, if the offer is more than Freeman and Smith think they can leech from the paper over the next 2-3 years.

“There is a shared concern that Alden won’t do the right thing ever and that the community needs to step up,” J.B. Holston, the engineering and computer-science school dean at the University of Denver, told the Post. “They seem to have no sense on how to optimize or protect the value of an asset.”

Those who support a vibrant local press can only hope Alden will do what it does best: Take the money and run.

An earlier version of this story appeared in The Nation. Have something to say? Send us a letter.

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Julie Reynolds Martínez

About Julie Reynolds Martínez

Julie Reynolds Martínez is a freelance journalist who has reported for the Center for Investigative Reporting, The Nation, NPR, PBS and other outlets. She is a co-founder of Voices of Monterey Bay.