In Spring
of 1999, Matt Levine left Toronto, Canada to pursue a dot-com dream called
"Efront Media" in California. Like so many before him, he left his
family behind and put many plans on hold while he chased after the pie in the
sky. Fast forward to March 8th, 2001, when Matt submitted his
official resignation as CTO of Efront Media, Inc. What happens next is an event
that sets Matt's story apart from the thousands of other laid off hi-tech
workers throughout the country. Efront Media officially began business in May of
1999, amid a frenzy of new dot-com companies starting up. The CEO of the company
was 29-year old Sam Jain, who had quit his job as VP of Marketing at a
now-defunct Internet company. Through his work, Sam was introduced to Matt
Levine, with whom he began discussing the possibilities of starting a company of
their own. The concept was to consolidate popular websites into a network from
which they could leverage the collective popularity for better advertising
rates. Thus, Sam and Matt launched Netwhirl Communications. Their
first acquisition was a company called BetaNews, which just happened
to own the domain name "Efront.com". Netwhirl became
Efront, and began its journey of conquests.
Over the next 2 years, Efront Media
swallowed numerous websites with deals sealed with promises of stock
options and monthly cash payments. Efront's strategy seemed to work
perfectly as it was able to consolidate over 250 websites to increase
overall traffic and revenues. Then in September of 2000, online
advertising rates began to freefall as companies reevaluated their ad
marketing budgets and the slowing economy began to take its toll.
Efront's entire revenue model was advertising based, which was
decimated as one by one, companies pulled their ad campaigns. To
compound the problem, many of Efront's customers faced cash crunches
and were unable to pay their bills, resulting in high uncollectable
debts.
Jerry Ziegler, who was President of
Efront in the Fall of 2000, found himself staring at a financial
crisis unfolding right before him. Jerry had quit his previous job in
the financial services industry to join Efront's management team in
June of 1999. He was attracted to the lure of the dot-com world and
was fascinated by the Efront concept. After being promoted to
President in 2000, he was thrusted into the most difficult situation
of his life. By September of 2000, Efront had cash commitments that
largely outpaced its cash flow. The biggest burden to the company was
the cash payments that were due to the owners of the acquired
websites. Efront signed deals for monthly cash payments stretched out
over 3 years to amortize the cost of the acquisitions. The monthly
payments ranged from $500 to $30,000 per month. If you multiply that
by 250, you can quickly do the math. According to Jerry, the monthly
revenues in September were in the range of $500,000, most of which
became uncollectible.
Beginning in Septemeber of 2000,
Efront's corporate payroll was many times delayed as cash flow became
a serious problem. Matt says that he had not received an official
paycheck from the months of October to March. During this time, he
also purchased computer equipment for the company based upon promises
that he would be reimbursed. He voiced his concerns with Sam Jain,
the CEO, but was always met with promises and assurances that he
would be paid. When the reimbursements and paychecks never surfaced,
Matt was faced with debts of over $20,000. Trapped in California with
an immigration problem due to his Canadian citizenship and bound by
loyalty to his brainchild, Matt continued to work for Efront as its
CTO.
As November quickly approached,
Efront's financial situation became dire as companies simply refused
to pay their advertising bills. The company quickly ate through its
cash reserves, largely funded by $750,000 that Jerry raised through
friends and family. Webmasters within Efront's network began to
notice their monthly checks had been delayed with promises that they
would be paid soon. By January of 2001, no Webmaster had been paid
for months. Tensions mounted and the Webmasters began their own
online discussion forum to compare experiences and trade information.
As they discussed their common problem, one theme seemed to arise:
Efront had approached each of them individually to renegotiate their
contracts for lower monthly payments. The odd part was that the
company insisted that the Webmasters each waive their rights to
backpay in exchange for more stock options.
Jerry Ziegler was under immense
pressure to make ends meet when it seemed that the company was
sinking. While he suggested to Sam Jain that the contracts with the
Webmasters should be renegotiated, he inisisted that cash payments
should still be made even if the amount was smaller than stipulated
in the contracts. Sam disagreed and terminated Jerry on February 27,
2001. When asked for a reason, Jerry says he was terminated without
cause. On March 8th, Matt Levine and 3 other members of
the Efront management team confronted Sam Jain with an offer: Step
aside from company operations temporarily so that we can recover the
company out of its financial crisis. Sam flatly declined the offer,
and the group submitted their resignations effective immediately.
Among those departing was Bill Hodson who had been nominated by the
group as the interim CEO. Bill had served as the company's Marketing
point man since 2000 and was deeply involved in day-to-day
operations.
The twist in the story begins here on
March 8th. An anonymous former employee of Efront sends an
email to the website Fuckedcompany.com containing a number files
claiming to be the ICQ logs of Sam Jain, CEO of Efront. ICQ is a
popular Internet chatting software that keeps records of every
transaction for the convenience of the user. The ex-employee claimed
that the logs were copied from Sam's laptop which is used primarily
for work. Fuckedcompany.com promptly publishes links to the logs so
that its visitors may judge for themselves the contents. What seems
to be a innocent prank turns out to be the most damaging and
embarrassing event to hit Efront since its inception.
The ICQ logs include daily
conversations that Sam had with Efront employees and personal
friends. While most conversations pertain to the inane details of
company operations, the most damning is alleged evidence of attempts
by Sam to defraud the Webmaster that are owed money. Conversations
between Sam and Will Bryant, another Efront management figure,
include discussions to force Webmasters to accept lower monthly
payments and in some cases, returning low-performing websites to its
owner despite binding contracts. A tactic that worked was to withhold
payments until the Webmaster was on the verge of bankruptcy, then
offer a reduced cash settlement significantly lower than the existing
contract. Many Webmasters confirmed that this did indeed happen to
them and that many times they never received the lower settlement
despite signing a new contract. Another tactic was to inform the
Webmasters that the company was going bankrupt and the Webmasters
would receive nothing if they did not sign a new contract that
clearly disadvantaged the Webmasters. Conversations took place
regarding altering traffic statistics to cheat Webmaster out of their
bonuses, or to increase the amount due by advertising customers.
Matt Levine and Jerry Ziegler were both
included in the ICQ logs and both insist that the logs are true and
accurate depictions of the events that transpired at Efront between
November and March. Both added that they were aware of the tactics
that Sam Jain utilized to disadvantage the Webmaters, and both
attributed those tactics to their departures from the company.
In my interview with Jerry, he
described numerous heated arguments in February regarding company
policy that culminated in his termination. By his choice of words,
the management style of Sam Jain was similar to a dictatorship. He
said that Sam largely ignored attempts by the rest of the management
team to resolve the conflict with the Webmasters in a better way.
However, that would not be the case as Sam directed negotiations
himself with the Webmasters.
One conversation that clearly bothered Matt Levine after the logs were
released was between Sam and Tim Eckel in which they discussed problems
with
the Webmaster of Babynames.com, Jennifer Moss. In the conversation, Sam
discusses ways to force Jennifer Moss to accept the new agreement. As
negotiations flounder, Sam quickly switches to discussing options to
return
the Babynames website and terminate the contract without any cash
payments.
When Jennifer refuses to cooperate, Sam blatantly comments "Rape her and
spit on her". Matt Levine said that upon reading this comment, he and
numerous other former Efront employees immediately called Jennifer Moss
and
apologized for the comment even though they had not made the comment. He
says that they wanted her to know that they did not agree with Sam's
attitude and had already departed from the company.
On Saturday March 10th, it
is discovered that there are intimate personal conversations within
the ICQ logs pertaining to Sam's relationships with female escorts
and call girls. They detail conversations between him and a number of
friends discussing pictures of girls whom they could pay for sex. On
numerous occasions, Sam writes that he had set up appointments for
escorts to visit him from other states, paid for by company
entertainment funds. In certain conversations, Sam discusses mutual
masturbation with one of his male friends regarding online pictures
of naked women.
After the release of the logs on the
Internet, many websites began to pick up the story and published the
logs on their sites. Message boards came to life as readers began to
discuss the significance of the logs. Some readers began to do
research of their own, and found out that Sam Jain had once been
convicted of fraud when he was 21. Matt Levine confirmed that it had
happened but was not aware of the details.
To make matters worse, Efront sent
letters to websites publishing the logs to remove them immediately
pending a criminal investigation. A second letter was sent on Sunday
afternoon ordering a cease and desist for all websites carrying the
logs. Many websites did remove the logs, however a number are still
up. The most prominent site is: www.echostation.com/efront
Both Jerry and Matt declined to comment
on whom they thought had released the logs on the Internet. Jerry did
comment that he was not surprised it had happened given the turbulent
atmosphere at Efront. His final comment was that while readers could
judge for themselves the accuracy of the logs, the overwhelming
corroboration of the validity of the logs can be found in all the
online testimony of the Webmasters that the events are both accurate
and true. The truth, he said, will be known in time.
Send all comments on this article to Tim Johnson, the author.
UPDATE: Tim Johnson will be posting a follow-up article in one
to two weeks. Check back here for more infomation.
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