U.S. District Court - Southern District of New York

U.S. District Court — Southern District of New York.

And the toxic cleanup surrounding SFX Entertainment continues.

‘Embrace failure,’ the titans of Silicon Valley urge.  But failure is usually a messy thing to deal with, especially when it comes to meltdowns like SFX Entertainment.

The once-ambitious EDM-focused company, started by Robert F.X. Sillerman, plunged into bankruptcy in 2016 after a series of catastrophes and bad calls.  That was years after Sillerman started the heavily-funded effort to consolidate the then-booming EDM space, only to see it crash a few years later.

Of course, EDM itself never crashed, as many had predicted (or hoped).  But the format has certainly lost some steam since SFX started doubling down on acquisitions, consolidating clubs and gigs, and going public.

Now, more than three years after its plunge into insolvency, top SFX execs are still facing the music.  Just this morning, court settlement papers involving several top SFX directors and Sillerman himself were shared with Digital Music News.  The settlement calls for a payout of $7.5 million, with none of the defendants admitting any wrongdoing.

But what did they do wrong?  In short, the cast — which included CEO Robert F.X. Sillerman and directors D. Geoffrey Armstrong, John Miller and Michael John Meyer — is accused of fraudulently pumping SFX’s stock before declaring bankruptcy.  Apparently the plaintiffs, Guevoura Fund LTD, felt enough leverage existed to demand the $7.5 million payout before heading into an arduous and expensive trial.

The motion for preliminary approval was filed in the U.S. District Court for the Southern District of New York (Guevoura Fund LTD et al. v. Sillerman et al., case 1:15-cv-07192).

It should be noted, however, that these are just settlement terms, not signed settlement terms.  Accordingly, any one of these ex-directors could refuse to sign at the last second, including ex-CEO Sillerman.  The draft settlement calls for signatures within 21 days.  If signatures aren’t received, the lawsuit will likely resume where it previously left off — which means a trial and a demand for far more substantial penalties.

It also appears that other creditors may be chasing similar fraud claims.  On top of that, Sillerman himself is continuing to battle bankruptcy, with multiple creditors pursuing remedies (including Geuvoura).  Sillerman initially declared Chapter 7 bankruptcy in 2016 alongside SFX’s Chapter 11 filing.

Indeed, Sillerman and other former SFX executives will probably be battling legal problems for years.  All of which makes failure seem like a highly overrated learning tool — at least when it’s this big.

More as this develops.