This is a fascinating read that leave more questions than answers.
Why and how could an information Internet play be sued for
monopolistic practices? Anyways, the author condemns the
whole Internet bubble. It turns out that the whole VC company
that funded the play also disappeared with the Etattler CEO.
The letter to the stockholders is hilarious. I might disagree with
his premise that bogus business models are easily recognizable.
Greg
p.s. Extra points for who can identify the beach in the picture.
My guess is it's mainland, MX, about 40 miles sourth of Puerto Vallarta.
CONFIDENTIAL MEMORANDUM
Date: July 29, 1999
To: eTattler.com employees
From: Tully M. Winterborne III, Esq.
As some of you already know, my firm has been retained to
assist in the investigation of eTattler's activities over
the past few months, and to provide for an orderly
disposal of the company's assets.
Let me be clear on one matter: You will receive no further
payments from eTattler. Your stock and options are most
likely worthless.
As is the case with your senior management, moreover, some
of you also may face criminal prosecution and/or civil
litigation. I therefore strongly advise all of you to
retain personal counsel. My firm cannot, of course,
provide such counsel but we will be happy to make the
appropriate referrals.
I also want to stress that if any of you knows the
whereabouts of Daniel D. Gamble, you should come forward
immediately.
Most of you have told me or my associates that you were
taken completely by surprise by the manner in which
eTattler unraveled so quickly during the past several
weeks. I frankly find that difficult to believe.
Nonetheless, as best we can determine, here is what
occurred.
As you know, Mr. Gamble and many other members of the
senior management, as well as some of the other early
investors, used the secondary public stock offering to
sell large amounts of their own holdings to the public.
This was disclosed, albeit obliquely, in documents filed
with the Securities and Exchange Commission and was
therefore not fraudulent. It was, however, a red flag to
several companies with whom Mr. Gamble had been
negotiating for a sale of eTattler.
The potential bidders stepped up their due diligence
process -- and showed more due diligence, frankly, than
anyone else associated with this company has shown, at
least in my firm's opinion. They discovered, for example,
that Mr. Gamble appeared to have been misrepresenting
eTattler's information inventory and was certainly
understating the company's technical difficulties. The
longer they looked, the lower their offers dropped. At
least one of those companies is believed to have leaked
derogatory information about eTattler to the press in the
process, further driving down the price. Within days of
the secondary offering, the share price hit an all-time
low.
This attracted the attention of several law firms that
specialize in suing companies whose stock prices drop for
almost any reason. Several lawsuits were filed. It turned
out, of course, that trial lawyers were the least of
eTattler's troubles.
Mr. Gamble and his associates did find a willing buyer.
However, just before the sale -- technically, a merger for
tax reasons -- was to be announced, the U.S. Department of
Justice began an investigation of possible monopolistic
practices by eTattler in the salacious-information
marketplace. (I can neither confirm nor deny speculation
that Microsoft Corp. was the source of the complaint to
the Justice Department, although I can assure you that
Microsoft did not offer $2.5 billion for eTattler at any
time.)
While the Justice Department was looking initially at
competitive practices, it soon turned its attention to
other issues, and the Criminal Division replaced the
Antitrust Division as lead in the investigation. Soon, a
number of federal and state agencies joined the case. They
include the SEC, California Attorney General's office,
Santa Clara County prosecutor and others.
Late last week, Mr. Gamble told associates he needed to
``get away from all the hoo-rah'' for the weekend. He said
he would be taking his new sailboat on a shakedown cruise.
He has not been seen since.
People involved with the various prosecutions are highly
skeptical that Mr. Gamble fell overboard and drowned, as
the initial evidence suggested. Yes, the ship was found
adrift and unoccupied, with various indications of such a
mishap, about 25 nautical miles offshore from Half Moon
Bay. But it turns out that Mr. Gamble did not, as he
indicated to many of you, pay cash for the boat; he put
only 20 percent down despite having more than enough in
his various bank accounts to buy it outright.
In addition, I have seen a photograph
obtained by a local newspaper that has
been covering the story of Mr. Gamble's
disappearance and the eTattler
financial implosion. It is a grainy
picture, taken from the back and
apparently at some distance, of a man
sitting on a deck overlooking a
deserted beach; Mr. Gamble had told
friends of his wish to buy an island
someday. The person in the picture is
also holding a drink and has a cigar in
his mouth, two of Mr. Gamble's known
habits. Finally, the person in the
picture appears to be wearing an
eTattler hat. The picture has been
shown to several of Mr. Gamble's former associates. All
said it could be him.
That mystery may be explained partly by another open
question -- the actual identities and motives of the
venture capitalists who originally funded the company. Our
accountants tell us that ROFL Technology Investors Ltd.
recovered only a fraction of its original investment by
selling shares in public markets. We speculate that ROFL
was under the impression that the planned sale of eTattler
would prove immensely profitable, and therefore ROFL held
its now-worthless shares for that reason.
It also turns out that ROFL no longer occupies its offices
in Menlo Park, Calif. Investigators have traced ROFL's
ownership to a holding company based in Bogat, Colombia.
Perhaps Mr. Gamble, who made tens of millions by selling
much of his eTattler holdings, has more to worry about
than mere arrest by U.S. authorities. In any event, the
members of the eTattler senior management who have been
charged with fraud and other crimes are being held in
protective custody, in locations known only to their
attorneys.
The final question remains: How could eTattler have gone
on so long and fooled so many people? Those of us who have
come into this situation in the past few days are frankly
baffled. The company's prospectus was clear enough that
there never was a plausible business model here, just a
clever-sounding idea. Anyone who looked closely should
have realized this company was not playing straight.
I believe the answer may be in the Internet culture
itself. The financial boom has been exciting, but also
tempting to those with less-than-stellar ethics who have
found easy targets among greedy investors.
It makes me wonder, too: How many more eTattlers are out
there?