Internet Firm Luckman Surfs Rough Waters

Source: Los Angeles Times
Date: April 14, 1997

But lawsuits, complaints from unpaid employees and creditors don't faze entrepreneur

by Karen Kaplan

A visitor to the Internet World trade show in Los Angeles last month would have come away with the impression that Luckman Interactive was an industry powerhouse.

The 3-year-old firm, which makes software and Internet directories, hung a giant banner on the side of the Los Angeles Convention Center - the only company to spring for the expense. Its booth was among the biggest at the show, rivaling those of Netscape, Apple Computer and Sun Microsystems.

The company has raised more than $20 million from private investors and operates out of a posh suite on the 25th floor of a downtown Los Angeles high-rise.

But behind the image of a hot young high-tech company on the way up is an unpleasant tale of an ambitious super-salesman who by most accounts is on the way down - and may be taking more than a few people with him.

Dozens of former company employees have gone several months without being paid. Creditors have filed suit. And one major backer of the firm alleges in a lawsuit that the company and its founder and chairman, Canadian-born Brent Luckman, have squandered nearly $1 million in company assets on first-class airline tickets, home stereo systems and donations to the Church of Scientology.

Luckman, 38, insists that despite the company's current financial and legal troubles, Luckman Interactive is poised to ride the Internet boom to a big financial payoff.

"We've got a great future ahead of us," says the charming, charismatic Luckman. "High tech is the kind of thing where I've never had a shortage of ideas."

Luckman got his start in the computer business selling components for a Canadian firm after taking a few marketing classes in college. He says he then took a job with Texas Instruments' semiconductor division and won top sales honors two years in a row. However, Kathy Quick, a spokeswoman at Texas Instruments' Dallas headquarters, said there is no record that Luckman ever worked for the company.

Luckman eventually moved to California and started a firm in Glendale called Maxa, which produced two successful diagnostic utilities for Macintosh computers before being sold to Central Point Software.

Luckman caught the Internet bug in early 1994. He decided to start a company that would make products to ease connection to and use of the nascent World Wide Web. He raised $1.8 million from friends and relatives, and later raised a total of $18.7 million in two private placements underwritten by Yorkton Securities of Toronto.

Today, Luckman Interactive's product line includes a server kit called Web Commander, a collection of Internet applications called Net Commander and a CD-ROM version of its Web site directory called Best of the Web. Software reviews in PC magazine, InfoWorld and other trade publications praise the Luckman Interactive offerings for being simple to use and generously priced.

Luckman Interactive also produces Web site reviews that are published by Barnes & Noble in a pair of books called "World Wide Web Yellow Pages" and "Best of the Web." The titles were the fourth- and fifth-best-selling computer books at Barnes & Noble stores for the fourth quarter of 1996, said Jennifer Wolfertz, a spokeswoman for the New York-based bookseller.


Last spring and summer, flush with cash and boasting a growing staff of about 65 people, Luckman went on a buying spree that would result in the acquisition of three smaller software companies and push total employment above 100.

But problems were not long in coming. Employees say their troubles began with a companywide "staff training and enhancement day" at the Church of Scientology's Celebrity Center in Hollywood, organized by Luckman himself. The purpose of the meeting, according to an Aug. 10 memo, was to reward employees for several months of rapid expansion and prepare the group for an "upcoming expansion" by reviewing new management techniques that would be instituted at Luckman. "I strongly urge you to attend," the memo concluded.

Many employees were outraged. Some knew that Luckman was a Scientologist, but they were dismayed that he would mix the company with his controversial religion. In addition, there was widespread resentment that employees would have to attend an all-day company function on the weekend without pay.

"There was an implication that if you didn't go, your job was in jeopardy," said Corinna Moebius, who worked on Luckman's Web site directories for nearly a year before resigning in February. "I said I was moving that weekend, because I was afraid for my job if I didn't go."

Ultimately, enough employees expressed concern about the event that it was canceled. But on Dec. 4, a group of employees were called into an "awareness seminar" in Luckman's office. When they got there, they were greeted by a panel from the Celebrity Center.

"There were zero aspects that could be related to management," said an employee who stayed for the hourlong session. "It was mostly Simon Says-ish: 'Feel your chair.' 'Feel your eyes.' 'See spots on the wall.' 'Locate objects in the room.' "

When pressed by employees, organizers told them that the meetings were voluntary, and many opted out. But former employees say the incident cast a pall over the company as people became preoccupied with the Scientology issue.

Brent Luckman says he never heard about any objection to the meeting until March, when some of the protesters were laid off for financial reasons. He also denied that he tried to incorporate Scientology into the workplace.

"I don't use Scientology management techniques in this company at all," Luckman said. "People like Intel use techniques like WISE," the World Institute of Scientology Enterprises, also known as Hubbard Management Technology.

Barbara Lopez, a spokeswoman for Intel in Santa Clara, dismissed as ridiculous the suggestion that the company used Scientology management practices.


Luckman's Scientology meetings were perfectly legal as long as they were voluntary, said Bill McNeil, managing attorney at the Employment Law Center in San Francisco. But many employees were upset, and some even boycotted the company Christmas party, an elaborate catered affair at Luckman's Pacific Palisades home.

A month earlier, Luckman had agreed to buy MicroHelp, a Marietta, Ga.-based software company, for $17.5 million. In mid-December, Timothy O'Pry, MicroHelp's chief executive, was introduced as the new president of the company.

Just a week later, though, O'Pry quit. "{He} was approached by so many employees with so many problems that he didn't feel like he could continue in that position," said Kirk Watkins, an attorney representing O'Pry and three other former MicroHelp principals. O'Pry declined to comment.

Mark Green, who was brought in as chief executive after O'Pry's departure, accused O'Pry and his former MicroHelp colleagues of abandoning Luckman after pocketing an initial payment of $3.5 million. But Watkins said his clients are still owed millions of dollars, and "it's ridiculous to say they took the money and ran."

Soon after, Luckman employees became victims of the company's financial troubles. They received paychecks only once in January and several have not been paid since. More than a dozen current and former employees filed claims with the state Division of Labor Standards Enforcement to recover their back pay, along with interest and penalties.

The firm has blamed the situation on a variety of factors, including suppliers who were tardy in paying their bills and investors who pulled out of deals at the last minute.

Earlier this month, after Luckman Interactive sold one of its software products to CyberMedia, a Santa Monica firm, Luckman said all back pay issues would be resolved. But former employees who either quit or were laid off--and are therefore entitled under state law to penalties in the $3,000 to $5,000 range on the unpaid wages--were told by Mary-Felicia Apanius, Luckman's corporate counsel, that they could not receive their paychecks unless they dropped their claims against the company and forfeited their penalties.

"I'm just stuck," said Laura Collins, a former employee. "I could use the cash, and the penalty almost doubles the amount. But I don't know the likelihood that this company will be around in six months."

Apanius disputes the notion that former employees are automatically entitled to a penalty payment and said it is standard for companies to require workers to drop their claims in order to receive their checks.

Rick Rice, a spokesman for the California Department of Industrial Relations, which oversees the Division of Labor Standards Enforcement, said the onetime Luckman employees are entitled to penalties.

"It certainly doesn't sound ethical for them to try to dupe employees into signing something that will give away their rights," he said.

While many young companies experience ups and downs in cash flow, it appears that many of Luckman Interactive's money problems may have been self-inflicted.

In December, Yorkton Securities sued Luckman Interactive, Brent Luckman and Marco Papa, the company's chief technology officer, accusing them of an "ongoing scheme . . . to loot the company and misappropriate company assets for their own personal benefit." The suit alleges that company money was used to buy home furnishings and stereo equipment, to lease luxury cars, to put Luckman's friends on the firm's payroll and to donate more than $30,000 to the Church of Scientology.


Brent Luckman acknowledged he owes his company $900,000 and expects to repay the money with interest by the end of 1998 at the latest. Luckman has also instituted some of the changes that Yorkton demanded. The two companies are now discussing a settlement. Executives from Yorkton declined to discuss the matter.

"To say that I looted the company is ridiculous," Luckman said. "The only reason Yorkton put out that bogus lawsuit was the fact that I wouldn't sell out for pennies on the dollar, and why would I?"

Other lawsuits are seeking money for bills that MicroHelp never paid. A pair of former employees who developed an Internet content service called Luckman Interactive News & Entertainment, or LINE, have also sued to protest their firings and collect back pay, bonuses and unreimbursed expenses.

Even with several issues unresolved, Luckman puts his usual positive spin on the situation. He says the events of last year, while tumultuous, have been a valuable learning experience.