|
BUSINESSWEEK ONLINE: DAILY BRIEFING | |||||||||||
| |||||||||||
|
BW ONLINE DAILY BRIEFING |
 | |
 | |
 |
||||||
A Sordid Lawsuit Shakes a Hot Web Startup Digital Entertainment Network founder Marc Collins-Rector departed after settling a sex-abuse case with a young boy The chairman and founder of Digital Entertainment Network Inc., a hot Web startup backed by blue-chip giants including Microsoft and Dell Computer, resigned soon after settling a lawsuit alleging he had a sexual relationship with a minor, Business Week has learned. DEN, which aims to create the online equivalent of a TV network for 14- to 24-year-olds, was founded by now-departed Chairman Marc Collins-Rector and two associates. All three resigned on Oct. 25, several weeks after the Santa Monica (Calif.) company filed for a $75 million IPO. The two associates were not part of the lawsuit. The company confirms that the suit, filed in May in U.S. District Court for the District of New Jersey, accelerated the founders' already-planned depature from DEN. "It was in the best interest of the company that he not have an active role in fact or perception," says H. James Ritts III, who assumed the role of chairman in addition to being DEN's chief executive. Collins-Rector's lawyer, Ronald J.. Palmieri, says his client denies the allegations in the complaint and says the suit was settled and dismissed. "It would be a travesty for the millions of dollars invested [in DEN] to be affected by these unverified allegations," Palmieri says. LATEST WEB CRAZE. Founded three years ago, DEN has raised close to $50 million from backers including Microsoft, Dell, two Chase Manhattan venture-capital funds, and several top executives of Lazard Freres. DEN is at the center of the latest Web craze, creating four- to six-minute streaming-video vignettes catering to the fastest-growing segment of the U.S. population. It has already created 13 online "series," ranging from sports and drama shows to news and travel. Its potential competitors include a new venture, Pop.com, created by Dreamworks SKG and Ron Howard's Imagine Entertainment, and backed by mega-investor Paul Allen. Though they weren't named in the suit, DEN co-founders and executive vice-presidents Chad M. Shackley, 24, and Brock Pierce, 18, resigned at the same time as Collins-Rector, 39. According to Palmieri, Collins-Rector's 34% stake in the company has been placed in a trust and can be voted only with the approval of two outside board directors. That leaves DEN's fate in the hands of executives led by Ritts, formerly commissioner of the Ladies Professional Golf Assn. and a founder of the Channel One closed-circuit-TV network for high schools. "You can paint an ugly picture here," says a DEN investor, who asked to not be identified. But "this is a real business, with a real strategy." When the founders resigned, company officials said they were leaving to launch a new encryption-based data-storage business. Although the DEN prospectus filed in September makes no mention of it, "it was planned all along that Marc would leave," says Ritts. "But it was accelerated in light of the court case." Previously, Collins-Rector and Shackley founded Concentric Network Corp., an Internet service provider. They left Concentric in 1995. CONTINUING STORY. The lawsuit, filed in Trenton, N.J., on May 26, 1999, alleges that Collins-Rector met a 13-year-old boy living in Lambertville, N.J., in 1993 through a Concentric bulletin board. Chatting with the plaintiff online using the moniker "Cyberpoet," the suit alleges, Collins-Rector offered the boy a job. According to the suit, the boy accepted, and that led to the then-CEO of Concentric flying the boy to his home in Bay City, Mich., where Collins-Rector "used his age, his corporate position, his home, his wealth, and his maturity to commit acts of sexual abuse." The suit says the relationship and abuse continued through 1996, with the boy also visiting Collins-Rector once he moved to Beverly Hills, Calif., to start DEN. Calls to the boy's lawyer were not returned. In addition to dealing with the fallout of the founders' departure, Ritts and DEN's remaining executives also have come under fire for receiving extravagant salaries by the standards of most Web startups. DEN executives are turning their attention to a Nov. 8 relaunch of the site -- and to the IPO they still hope to pull off. By Ronald Grover in Los Angeles and Richard Siklos in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
| |
 | |
 Assistive Technology barker.online Byte of the Apple Eye on Japan Hers.online Inside Wall Street Not-So-Neutral Corner Online Asia Power Lunch Privacy Matters Sector Scope Sound Money Street Wise Washington Watch News Flash Archive | ||||||
