Beleaguered online retailer TheBigStore.com is fighting for its life as Santa Ana electronics distributor Ingram Micro Inc. tries to force it into chapter 7 liquidation to recover more than $3.28 million in unpaid bills.
Facing a half-dozen lawsuits from creditors and accusations of fraud by former employees and customers, officials of BigStore, also based in Santa Ana, say they plan to re-launch their company as a business-to-business operation and repay everyone.
But at the same time, new questions are emerging about the company’s management team, including founder Robert McNulty and chief financial officer Jim Johnson, and its relationship with a so-called “affiliate” company under the umbrella of BigStore parent Global e Companies Inc.
BigStore, which sold everything from books to computers over the Internet, laid off most of its 300-or-so employees a few months ago, but until recently had continued to offer merchandise through its Web site. Ingram Micro is suing the company for merchandise it says it shipped on behalf of BigStore and has not received payment for. Other companies are suing BigStore for smaller amounts, demanding payment for computer services and equipment.
BigStore’s site appears to have shut down, though company officials insist they’re still in business.
“With a lot of the dot-com companies, funding has become very difficult,” said Johnson, a longtime Orange County accountant. “We’ve redone the company, and now we’re ready to re-launch in a different direction.”
McNulty and Johnson have had legal entanglements in the past.
McNulty had a brush with the Securities and Exchange Commission for his earlier Internet venture, Shopping.com. McNulty left Shopping.com during an SEC investigation, though he admitted no guilt and was not named in the case’s outcome. Before Shopping.com, in 1995, McNulty was ordered to divest $70,000 to settle charges stemming from money transfers among a separate chain of warehouse stores.
Though BigStore officials said McNulty no longer has a management role, he does remain an investor and is named in several of the lawsuits against the firm.
Legal Issues
Johnson is facing separate legal problems. An earlier long-distance phone service provider he headed called TelNet lost a $480,278 suit in March. In that suit, the judge found Johnson and his company responsible for “fraudulent conduct” in a deal with a company called Small World Communications. Johnson said he is appealing the judgment,he calls the court ruling “the first piece of a puzzle”,but has not yet filed any action.
BigStore announced earlier this year it would merge with TelNet, but Johnson says the deal fell through. Nevertheless, he said, it was meeting BigStore officials in those negotiations that led to his current job at BigStore. He said the two companies have no current relationship, although he acknowledged that he’s working for both.
Johnson also said he became involved with TelNet only after it ran into trouble, in an attempt to revive the operation,something he says he’s trying to do for BigStore now. But a business plan provided by one of Johnson’s former business partners names him as TelNet’s founder and chief executive.
In an e-mail used as evidence in the TelNet suit, Johnson wrote to partners that the company was being investigated by “two big U.S. agencies” and received a visit from the U.S. Secret Service investigating a suspicious letter of credit the company used to secure payment. In the same e-mail, Johnson said TelNet’s 1999 tax returns were being audited, as were Johnson’s 1996 and 1997 personal returns.
When asked about those investigations, Johnson said he could not comment, pending the filing of his appeal.
Parts of the TelNet suit echo accusations Ingram Micro makes in its bankruptcy petition. TelNet was accused of bouncing checks and deliberately stalling payment by submitting checks that were improperly made out. Ingram Micro alleges BigStore used similar tactics.
Another common thread between the two companies was a pending investment from a firm called Red Dolphin Enterprises that in BigStore’s case appears not to have been consummated. Johnson said the principals of the New Mexico venture capital firm were in Venezuela this month and couldn’t be reached for comment. A call to the firm last week was not immediately returned.
TheBigHub
Even as BigStore flounders, a related company called TheBigHub is attracting more investors.
BigStore has what officials from both companies call an “affiliate” relationship with TheBigHub.com, a publicly traded company that lists San Antonio, Texas, as its headquarters. The company has no plans to assume BigStore’s debt or obligations and maintains that it is a separate legal entity.
The BigHub recently announced a $5.3 million advertising blitz to promote its brand name.
John Ferrente, BigStore’s former manager of customer relations who lost his job in a round of layoffs, said the two companies were essentially the same entity. Ferrente said while at BigStore he answered customer e-mail from both companies and received copies of all e-mail that went to BigHub’s investor relations firm.
A woman who answered last week at TheBigHub’s Texas phone number said most of the company’s employees were in Orange County and gave an Orange County phone number for TheBigHub’s chairman and chief executive, Frank Denny.
BigHub operates as an umbrella Web site tying together a group of e-commerce sites that share the word “Big” in their addresses and in some cases joint ownership arrangements.
BigHub is named as a co-defendant in several of the lawsuits against BigStore, with the plaintiffs alleging that Denny is an investor in BigStore. BigHub’s filings do not list McNulty, however.
Ferrente, who along with several former workers says BigStore owes him back pay, said, “It was a textbook example of how not to run a business. There was just so much that went on, I could write a book.”
Some Clients Unhappy
Empty-handed customers and former employees, meanwhile, accuse the BigStore of continuing operations long after it became clear that the company would not be able to meet its obligations.
Robin Smith, an Oregon resident who says she never received an $877 digital camera she paid for in March, has filed complaints with her state’s fraud unit but said it would be too expensive to pursue the matter in court.
“What happens to all the customers?” she asked. n
