Thursday, July 3, 2008

Michael Robertson Speaks--Intentions Revealed

Michael Robertson finally broke his silence about what the 100 Linspire shareholders can expect from the sale to Xandros. No, this didn't happen in a shareholder meeting, but to a reporter. Apparently reporters matter more to Michael than shareholders. He has time to give them a call, but apparently no time for the 100 people who invested money and years of hard work into his ideas.

Michael was quoted this morning in a San Diego Union-Tribune story. The reporter, Mike Freeman, did try to contact me yesterday, but when I called him back a few hours later, it was past the deadline, and his story had already been sent off. I did speak with Mike this morning, however, and discussed with him what I'm sharing below.

I'll comment on a few of the quotes from the story...

Robertson said that in any transaction, preferred shareholders and investors are at the front of the line to get paid.

"Any" transaction? That's certainly not true, but it does show how Michael views minority shareholders.

To further understand Michael's attitude to minority shareholders--when I was at Linspire, Michael said he wanted me to transfer $1,000,000 from Linspire's account to himself because "MP3tunes needs some money." (MP3tunes is another company that Michael owns, unrelated to Linspire, with completely different shareholders.) He also wanted me to transfer $500,000 to his father-in-law. I objected, of course, saying that the cash was a Linspire asset.

Linspire had a very good year, so we had money, and I told him we could certainly make a dividend in these amounts to him and his father-in-law, BUT that we'd also have to give the same per-share dividend to all the other shareholders as well. He said that because he and his father-in-law were "preferred" shareholders, they were "entitled" to this special dividend and that "this is a common practice in companies and happens all the time." I knew, however, that Linspire and Michael's preferred shares were not structured in that way (Linspire had two different law firms confirm that point), so I certainly never made these payments.

I guess Michael still needed the cash, and he didn't want to have any money go to the other shareholders, as he then set about removing everyone that stood between him and the money.
Within a matter of days, Michael sanctioned a plan to fire the CFO and Controller. He next, without a shareholder meeting, removed myself and our CFO from the Board of Directors, leaving him as the sole member on the board. It was becoming very clear to me that Michael's plan was to see the Board, CEO, CFO and Controller gone, leaving no one to stop him from turning Linspire's assets into his personal piggy bank.

After I left Linspire, because I was fearful that Michael's intentions were to misappropriate Linspire's funds to himself and his father-in-law, I had my attorney arrange for me to review the Linspire books. Michael refused and his lawyers pushed back my requests. To this day, even though I'm a significant shareholder, I have not been allowed to see the books, nor has Michael held a shareholder meeting.

When Michael realized I was putting up road blocks to prevent him from just reaching in and taking out cash, even after all the officers had been removed from his way (and him going so far as to falsely accuse good people of embezzlement for accepting reasonable severance payments), it appears he set out on a new course of action to get at the cash...liquidation.

Every company has different rights for preferred and common shareholders. At Linspire, the liquidation rights of the preferred shareholders were very weak (see S1), being not much different than those for the common shareholders. The difference in liquidation preferences between common and preferred shareholders at Linspire is very small, and it appears Michael set about structuring everything to navigate all the cash from Linspire to him, through that tiny space of differentiation. (It may apparently take a lawsuit to uncover if he was successful in that operation.)

He said he couldn't get into specifics of the deal or say whether anything will be distributed to minority shareholders.

Not even with the 100 shareholders? By law, he will be forced to "get into specifics" to those of us who have invested and hold shares in Linspire.

“I personally have invested more than $20 million in Linspire,” Robertson said.

Pure nonsense!

An investigation in the public documents filed with the SEC can give anyone insight into what Michael has invested. Michael invested equity into Linspire and, at times, extended it loans. Before I left, Linspire had paid back any and all loans to Michael, and the company still had millions of dollars of retained earnings in the bank. Michael's EQUITY investment into Linspire is nowhere close to $20M! In fact, at no point in time was Michael's equity investment COMBINED WITH HIS LOANS anywhere close to $20M. This would be like me loaning you $10 every day for lunch, you pay me back in full at the end of each week, and then 7 years later I say "I invested $18,200 in you!"

“It's important to know that when there are distributions, the investors always get their money back first, and if there's nothing left over it's not a devious plan to screw shareholders."

So, let's get this straight Michael...the tens of thousands in CASH that employees "invested" into Linspire when they purchased their stock doesn't count, but your cash does? You're an "investor," and they're all just peons to be taken advantage of? Do we not even warrant a shareholder meeting? You said you invested $20M--is that the number you're using to cut first in line? What deal did you structure to navigate your weak liquidation preferences through to the cash? Was this a "liquidation, dissolution and/or winding up of the Corporation," or was it an "acquisition of Linspire" as stated in the press release. Will there be a distribution, or will we be writing off our investment in Linspire? Can you blame shareholders for finding you "devious" when you don't hold annual shareholder meetings, refuse to let us review the books, and then liquidate the assets without sharing any information with us about the deal and how it effects us? WHEN WILL YOU HOLD A SHAREHOLDER MEETING AND ANSWER THESE QUESTIONS???

"It's the way it works.”

No, Michael, it's the way YOU work. Hopefully prospective investors in any Michael Robertson ideas are paying close attention.

If you ever find yourself on a boat with Michael, and it starts to sink, don't be surprised if you spot him pushing women and children out of the way as he scrambles for the only life boat, screaming "I'm first in line!"

Kevin

PS: On a minor point, Hoovers was wrong in their quote of $3M in revenue and 18 employees. Revenue is 2007, the year I left, was substantially higher than that, and departing employees have said that Linspire has around 8 employees left today.

Also, Xandros claims to be the 3rd largest Linux company and largest privately held one. Well, you'd have to ignore IBM, Intel, Nokia, etc. who probably employ more Linux engineers than Linspire, Xandros, Canonical, Mandriva, etc. combined and limit it just to Linux distro companies. I'm quite sure Canonical (Ubuntu) is larger than Xandros in terms of employees, users, and I'd imagine revenue as well. As for impact on the space, that's not even close.

17 comments:

Justin said...

Nice update..thanks for keep us updated on your side of the story.

B-W said...

OK. I'm royally confused. I admit that I'm no business expert, but I always thought that "shareholders" WERE "investors," by definition. Indeed, how can an investor NOT be a shareholder (or vice versa)? Could someone clear up (use small words, please!) the distinction?

Kevin Carmony said...

As reported in this story, Michael has said, "No stockholders meeting is in the works." Further indication of what he thinks of minority shareholders and employees.

Kevin

Anonymous said...

I worked with Michael Robertson at MP3.com and found him to be arrogant, incompetent and dishonest. It's nice to see the real "MR" coming to light. His snubbing of Linspire's minority shareholders doesn't surprise me one bit.

Just be grateful to be away from him Kevin. I know I am. I've never met anyone as ruthless or unethical since. There are good people in business, you just need to learn to spot the a-holes like Robertson and stay far away.

Kevin Carmony said...

B-W,

All investors are shareholders, but companies can have different classes of stock. Linspire had both "preferred" and "common" stock. The rights of each class can vary, as defined by charter and investment documents.

If Michael is saying that the common shareholders will not be receiving anything, then that means ALL of the following must have happened:

1. Michael made sure to structure everything to navigate the cash to him and no one else. As I said, at Linspire, the common and preferred shareholders didn't have a lot of differences in regards to liquidation preferences. So, Michael would have had to intentionally worked hard to make sure and do everything "just right" to make sure he got all the money, and none went to the other 100-some-odd common shareholders. (It appears a lawsuit will be required to sort through the records and transactions to see if he did do everything properly.)

2. That Xandros must have paid less for the company than what Michael and his father-in-law (the two preferred shareholders) had invested (WELL below the ridiculous $20M number Michael made up). This means that in the ten months since I left, Michael did a lousy job of building the business and managing the assets.

3. That Michael has no problem with the fact that small investors (such as employees who paid for their stock options) invested in him and his idea, and came up empty.

If everyone's money has been lost, Michael should at least have the common courtesy to explain what happened in a shareholder meeting.

Often, the biggest bullies turn out to be the biggest cowards.

Kevin

Kevin Carmony said...

Here is my challenge to Michael Robertson:

Michael, could you please explain to the Linspire minority shareholders where you got your $20M number from? If you can show me where you invested $20M into Linspire, I'll pay you $20M myself. But, if you can't, you'll be a man and hold a shareholder meeting, and personally explain to the 100 some-odd shareholders what happened to their investment.

Kevin

Sean said...

Now that's what I call putting your money where your mouth is =D. Of course we all know he'll never accept the challenge because I seriously doubt you would have made it if you thought there was much of a chance of loosing.

Joseph "Oponium" Thomas said...

Hi.

Ubuntu has around 20 employees working on Ubuntu, the other 30 or so are working on Launchpad or other projects (let's just say that Ubuntu isn't what they intend to be selling, it's Launchpad).

To be honest, they only have one Kubuntu developer (Jonathon Riddel, I believe).

Joseph

Kevin Carmony said...

Joseph,

Up until ten months ago, I was the CEO of a Linux company. I know many people at Canonical (Ubuntu). I have met on several occasions the CEOs of both Xandros (Andy) and Canonical (Mark). I can unequivocally say that your representation as to the number of employees at Canonical is WAY off.

As for Xandros, if they have as many employees as they say (I know Andy likes to outsource to India), and their user base, momentum, mind share, marketshare, etc. is so much less than Ubuntu's, that's just sad.

Kevin

Kevin Carmony said...

Sean, you're right. I wouldn't have made my offer to Michael if his $20M number was even in the same stratosphere as reality.

Kevin

Cory K. said...

I'd like to also say Joseph's numbers are *way* off.

I'm a community developer for Ubuntu/Ubuntu Studio and have been to many UDSs where you meet all the employees. There are many, many paid Ubuntu developers. I've even added to this pool through Ubuntu Studio where one of our developers were hired. :)

That aside...

Kevin, it's just shocking to read this story as it unfolds. I wish you and the shareholders all the luck.

And back to Ubuntu. Why aren't you involved over there? :)

Kevin Carmony said...

Cory,

You, of course, remind us all of a very good point...besides their MANY paid employees, Ubuntu has done an amazing job at harnessing "unpaid" developers. I should have mentioned that as well. Does Xandros even really have a developer community? I'm not aware of much they've done there. Linspire contributed a lot back (http://linspire.com/opensource), and when I became CEO, we open sourced pretty much everything we did, including the CNR client. I've never found Xandros to be a big contributor to the broader FOSS community, but maybe I'm just not aware of things they did in that regard?

Since starting Dating DNA, I've actually dusted off my coding skills, which I hadn't been able to use much in the past several years. I do all the graphics for the site and some of the coding, so it's been fun to write code again, especially the wide range of technologies we're using there (Flash, Javascript, PHP, HTML/CSS, iPhone SDK, FBML, SOAP, etc.) I'm slowly learning all the new goodies.

I know several people who work for Canonical, including one of my best friends who lives just down the road from me. We talk often about my ideas for Ubuntu. I'm a big fan of OS X. I see no reason at all why over time desktop Linux couldn't become just as polished and user friendly, BUT with the openness of Linux. To me, OS X is the gold standard for usability, but it's nothing more than great applications really polished and INTEGRATED NICELY together. I have every confidence Linux will get there one day.

Kevin

Mark K. said...

What a story! I'm just shocked at what has really happened to the linux distibution company Linspire, where people usually invest money, time and effort into something they believe would give Linux a better future. The company was doing well and was financially healthy, so there wasn't really any need to fire the members of the board and sell it. It's just sad to see that Robertson was really wreckless, he really has no respect to the people working with him - this will make future investors think twice before doing business with him. In my opinion he had no respect to the shareholders; I mean the least he can do is hold a meeting and give information to the shareholders, and give them their rightful share of the cake. In the end, above any laws that could give Robertson all rights to do what he is doing (if they exist), there is something we call honesty and respect.

Thanks for the news Kevin Carmony.

John Doe said...

It's great of you Kevin to actually speak up like this. It helps clear the doubts that aspiring opensource developers have about money management (or mismanagement) that is common in the corporate world. As an ordinary opensource enthusiast with programming skills, this explanation assures me of both events - your reported move to Canonical at one time and Linspire's sale to Xandros.
Thanks for that, on behalf of the small-guy opensource-enthusiast programmer. :)
Maybe I could sum it up this way:
Server-promised compensation is different from client-expected compensation. The former is real, in words in email. The latter is in the *mind* of the client.
When the server promises a compensation and does not follow up, should it be called a breach of protocol? Or not? Like RSTs sent to torrent clients?
When the client-expected compensation does not materialize its called "sour grapes".
But you cant call the former the latter and expect agreement, at least from the client.
That's probably the story of the 100 guys here. Am I right?
Of course, business needs to be done on signed papers with lawyers and stuff, but over the web, what replaces papers and lawyers?

Kevin Carmony said...

John Doe,

All the shareholders want (and deserve) is an accounting of what happened. Michael won't hold a shareholder meeting, has refused to let me audit the books, etc. That leaves us with little choice but to wonder what he's hiding?

Kevin

Anonymous said...

Kevin,

Fascinating to hear your side of the story. As another former MP3.com employee, I still dread the memories of interactions with Mr. Robertson, who was not only an arrogant bully but simply the most selfish person I have ever known in my life.

That he is still up to his shenanigans and treating others like peons is no surprise.

That companies like EMI may wind up shutting Michael down for good makes me say, "he had it coming."

David said...

I am not a shareholder or investor. Just someone that paid the $100 to get a lifetime of Linspire when they were getting money to represent the European lawsuits. I think it is just a shame that Linspire is no more and this dumping to Xandros took place. And it is a shame that Xandros is not trying anything to reach out to former Linspire customers.

What a screwjob...