DEN’s Last Minute Fire Sale Puts Them In Hot Seat
Bankruptcy officials are investing Digital Entertainment Networks (DEN) possible fraudulent below-market sale of assets and executive salaries. As reported in the LA TIMES, court-appointed officials are investigating allegations that three weeks prior to filing for bankruptcy, DEN sold off assets to insiders far below market price. The attorney investigating the situation, Richard Diamond, said, "Exorbitant salaries and sweetheart deals are fraudulent conveyances if not supported by adequate consideration." Fraudulent conveyance laws are in place to protect creditors from companies or individuals who are on the verge of bankruptcy selling off assets to friends and associates for virtually nothing because they have nothing to lose. DENs bankruptcy lawyer, Ronald Leibow, said, "It sounded to me like [the sales were] based upon fair value." However, former DEN vice-president, Melinda Moore, said, "It was sold for dirt cheap. We got laser printers that are normally US$2,000 for $300." DENs bankruptcy trustee, Todd Neilson, said, "We will do a thorough analysis of all transfers from the company. There could be serious problems with it, and there could be an explanation for it." The courts are also looking into salaries paid to top level execs in the 12 months leading up to the bankruptcy filing. Reports say that CEO, Greg Carpenter, received a salary of $1.2 million and a $274,000 bonus, president David Neuman received $1.6 million and ex-CEO Jim Ritts received $278,000. DEN gained a lot of press in its short two-year lifetime by setting itself up as one of the premiere youth-oriented original destination Web sites. Early on the company looked to be the first purely entertainment site to go public. However, enormous salaries and an employee base as high as 300 quickly whittled away the $60 million from investors. More problems arose after charges that founder Marc Collins-Rector seduced minor-aged employees leading to the public offerings demise. Finally in May, DEN closed its door after additional investment money fell through due to low audience numbers and an overall sense that the company was being mismanaged.