Most of the 9,000 former employees of MarchFirst Inc. have moved on from one of the bigger financial wrecks of the Internet stock bubble.
But MarchFirst’s former top executives and directors can’t put the company’s collapse behind them.
For starters, the lawsuits keep coming.
The latest, filed Tuesday in bankruptcy court, is the first of several suits contemplated by Andrew J. Maxwell, a longtime local bankruptcy attorney who was appointed trustee seven months ago in MarchFirst’s tangled liquidation proceeding.
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Maxwell’s job is to recover as much money as possible for creditors such as American National Bank, private equity firm Francisco Partners and vendors, from Microsoft Corp. to a local Herman Miller furniture outlet.
Where is he digging? In the pockets of the insurers, who could be forced to pay tens of millions of dollars in damages if a judge agrees with Maxwell’s allegations that MarchFirst’s officers and directors, including former CEO Bob Bernard, grossly mismanaged the company and misled its investors about its condition.
Maxwell’s 50-page complaint–a separate action from pending shareholder lawsuits–attempts to paint a vivid picture of a bungling board, allegedly asleep at the switch or kept out of loop.
Bernard and his lieutenants, the complaint alleges, squandered millions by hiring legions of consultants who had no work to perform, paying inflated salaries, leasing a corporate jet and embarking on grandiose real estate projects.
Sound familiar?
The suit describes excesses of the go-go days, when public companies and start-ups alike spent freely to stay ahead of the presumably rocketing growth in demand for all things Internet-related.
If the suit stopped there, it would read much like countless suits against corporate decision-makers for alleged mismanagement.
But the suit goes further to describe practices that flourished during an extraordinary stock mania, when investors who saw their neighbors getting rich suspended their own good judgment because they wanted to believe that companies like MarchFirst could fabricate wealth overnight.
Among the practices is a form of self-dealing called round-tripping, in which a company invests in an entity that, in turn, uses the money to buy goods or services from the investing company.
The bankruptcy trustee’s suit alleges that MarchFirst used such deals to pump up its income statements and create an “unfounded illusion of success.”
The suit alleges that Bernard–without prior board approval–rewarded Credit Suisse First Boston investment bankers by cutting them a favorable deal when he hired them to run MarchFirst’s 50 percent-owned venture arm, Bluevector LLC. The bankers, who owned 50 percent, contributed less than $500,000, while MarchFirst committed $50 million cash, plus start-ups valued at $37 million.
When the bankers resisted pressure from MarchFirst to invest in companies that promised to buy MarchFirst services, the suit alleges, Bernard created another entity, Bluevector Strategic Partners, that invested nearly $20 million in MarchFirst customers.
Attorney Joel Chefitz, a partner at Katten Muchin Zavis, who represents Bernard and the board, denies the allegations and says the facts will show these were “officers and directors who did their best during a difficult time.
“They of all people had the most to lose,” he says. “This is not like [Enron]. These senior officers did not sell their shares and walk away with money.”
But as this suit and others play out, questions remain.
Did Bernard and others try to dupe investors into believing the company was in better shape than they knew it to be?
Or did they, like MarchFirst’s investors, get swept up by the mania at a company that spun out of control?
Finally, with enough blame to keep attorneys working for a long time, who should pay for the collapse of a company that, before the Internet bubble, was a good little consulting business?
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