I have some good news to report to the 100 some-odd shareholders who remain in the dark about Linspire's missing cash and assets...
Robertson Loses Motion in Shareholder Lawsuit.
As I had reported back in September, Michael Robertson and Larry Kettler were sued in a derivative lawsuit, alleging misconduct by Robertson and Kettler which harmed the Linspire corporation and its shareholders. (Linspire had millions of dollars in the bank just months prior to its demise, but Robertson remains silent as to what happened to the corporation and Linspire's cash and assets, leaving minority shareholders in the dark.)
You would think with all the attention Robertson has been getting by ignoring the Linspire investors and shareholders, that he would be doing all he can to come clean to them as to what happened. Instead, Robertson's tossed out a legal maneuver which I believe was simply a ploy to try and intimidate the plaintiff who had sued Robertson on behalf of the company and shareholders. Robertson filed a motion to force the plaintiff to come up with a $50,000 bond before they could continue with their case against Robertson and Kettler.
Robertson and Kettler Lose Motion
This week the court denied Robertson and Kettler's motion requiring the bond, which means the case can continue to discovery and eventually to trial.
Even though Linspire minority shareholders still remain in the dark as to what happened, this is at least a small victory for them to see that Robertson will eventually have to explain himself in court.
It says a lot about Robertson when it has taken this type of lawsuit to get him to explain to shareholders what happened and that he continues to fight the process rather than just being forthright with the shareholders.
As I mentioned last month, Michael Robertson and Larry Kettler were sued for mismanagement of the now defunct Linspire. Although I am not a party in that lawsuit, it was my hope that it would help shed some light on what happened with the millions of dollars in missing cash and other Linspire assets.
Robertson and Kettler finally responded to the suit, and I got a copy of their response. From what I could see, what they produced did not provide any meaningful data on the missing cash. It appears that Robertson simply dumped on the plaintiff over 200 pages of misc. bank statements (not even covering the full periods from Aug. 1, 2007 to present). They failed to produce any meaningful financial statements, Income Statements, Balance Sheets, closing documents on the Xandros deal, etc. From the mishmash of evidence that was provided, it IS CLEAR there were in fact millions of dollars in cash when Robertson took over as sole Board member just over a year ago, BUT it is still very UNCLEAR where that cash ended up.
Michael Robertson - What is he hiding?
The lack of meaningful financial documents in Robertson's response didn't surprise me in the least. After having worked with Robertson for over six years, I witnessed first hand all of his legal maneuvers and tricks. One of his favorites was to overload opposing counsel with meaningless discovery documents, forcing them to sift through piles of papers to find the needle in the haystack, rather than just producing the documents which clearly show he is in the right. (This is a tactic people often use when they're NOT in the right.)
If Robertson and Kettler had nothing to hide, why wouldn't they provide HELPFUL documents that show EXACTLY what happened with the cash? If there is a good explanation, why wouldn't they simply provide that evidence? What is Robertson hiding?
According to one of the documents, the new Linspire Board was made up of Michael Robertson, his wife Leslie, and Larry Kettler (Robertson's consummate "Yes Man"). Not exactly what you'd call an "independent" board. Also, I'm not sure how Leslie and Larry could be on the board, considering the shareholders were never notified of these changes. The shareholders WERE properly notified when Michael fired all the other board members over a year ago, but have not been notified of any changes since. Again, why hide this?
So, my questions for Michael Robertson are:
1. If the only financial documents you plan on providing in the derivative lawsuit are bank statements, why not provide ALL the bank statements for the periods of August 1, 2007 through the present? (I would suggest to the plaintiff's lawyers that they subpoena the bank statements for the missing periods and START looking there. If Robertson is going to force you to look for the needle in the haystack, at least make sure all the haystack is there.)
2. Why haven't you held a shareholders meeting since taking over exclusive control of the Linspire Board over a year ago?
3. Why after months of you having sold Linspire to Xandros haven't you shared any details of that transaction with the 100-some-odd shareholders?
4. Why haven't you produced any meaningful financial statements, such as Income Statements or Balance Sheets to shareholders or to the plaintiff and lawyers in the derivative lawsuit?
5. Why are you trying to dissolve the corporation so quickly without explaining anything to the shareholders?
6. What happened to all the cash? Did you funnel it to yourself and/or your father-in-law? Did you squander it all in one short year through incompetent management of Linspire?
7. And lastly... When we had to let some very good, committed, long-term employees go at Linspire, you said you wanted to only give them two weeks of severance. I disagreed, and as CEO, I made the decision to give them more reasonable severance packages. You were so greedy and upset with the CEO's decision, that you filed a bogus police report and called them all embezzlers! Your argument for giving these good employees such piddly severance payments was that you wanted to keep as much money in the company as possible, claiming this would be better in the long run for those employees, the shareholders and the Linspire customers. So, my final question for you Michael: How'd your brilliant plan work out for everyone?
To this day, Michael Robertson has yet to explain to the 100 some-odd shareholders what happened with the millions of dollars in cash and assets that were owned by Linspire just a few short months ago. The assets seem to have completely vanished, leaving shareholders with no return on their investment or even so much as an explanation as to what happened.
In June, Robertson sold Linspire to Xandros in a back-room deal without any shareholder input or detailed notification. Even though Robertson sold Linspire three months ago, shareholders still remain completely in the dark as to the financial details of the transaction. How does that pass any smell test for investors?
Michael Robertson - Greedy, crook or just incompetent?
At the time the deal was announced, I predicted it would take a lawsuit to ever get Robertson to go public with the details, as it was my belief Robertson's motive for this transaction was likely to hide unauthorized transactions which he may have made using Linspire's assets as his personal piggy bank to reward himself and his father-in-law as well as fund his other companies. It appears I was right in my prediction as a lawsuit has now been filed against Michael Robertson and Linspire's then-CEO Larry Kettler in an effort to force Robertson and Kettler to finally explain to shareholders what happened.
Click here for a copy of the suit with all the details of the allegations.
The lawsuit is a "derivative suit" which is a lawsuit instigated by a shareholder of a corporation, not on the shareholder's own behalf, but on behalf of the corporation. The shareholder brings an action in the name of the corporation against the parties (in this case Robertson and Kettler) who allegedly caused harm to the corporation. Such derivative suits are often brought against officers or directors of a corporation for violations of fiduciary duties owed to the shareholders vis-a-vis the corporation. The derivative suit against Robertson and Kettler was instigated by Kevin LaRue, the one-time VP of Marketing for Linspire and a current shareholder, but any proceeds of a successful action are awarded to the corporation, benefiting all shareholders, not just LaRue.
Because Michael Robertson was the Chairman of Linspire's board and apparently their only board member (shareholders have never been given notice of anyone else having been added to the board since Robertson fired all the other board members over a year ago), it would be improper for him to make deals that would only benefit him as the majority shareholder. The lawsuit alleges Robertson did not fulfill his fiduciary responsibility to not only act in his best interest but in the interest of all shareholders.
Regardless of the ultimate outcome of this suit, if nothing else, it will hopefully, once and for all, bring to light what happened to Linspire. The minority shareholders have a right to know, and it's unfortunate it has taken this lawsuit to get any information form Robertson.
If my suspicions as to Robertson's actions and motives were unfounded, why wouldn't Robertson have come forward with all the books and details long before now? What is he hiding? Why is it taking a lawsuit to bring things to light? Robertson's behavior simply enforces my belief that he was in fact taking advantage of Linspire shareholders and is doing everything he can to cover up his actions.
A year ago, Michael and I disagreed over what was best for the future of Linspire and the shareholders. I resigned and Michael got his way, insisting he knew what was best for the future of the company and that he could return more value to employees and shareholders than the plans I had proposed. So far Robertson has produced nothing of value for the shareholders and the company appears now to be gone. Is Robertson a greedy majority shareholder who navigated things to make sure he got all the assets, a crook who stole the assets, or is he just incompetent, having squandered millions in one short year?
Hopefully this suit will once and for all uncover the truth and the shareholders will finally know what happened with their investment in Linspire and Robertson.
Kevin
PS: "Xandros has done more than any company to put Linux in front of users..."~ Michael Robertson (More than Ubuntu? Novell? Red Hat? Linspire even??? Robertson said this recently. With statements like this, you can see why I have a hard time believing anything else he says.)
Back on July 2nd, I asked Michael Robertson to explain to the 100 some-odd Linspire shareholders what happened with the millions in cash and assets that Linspire had just a year ago?
Today I received the below "Memorandum" in the mail from Michael Robertson, "President & CEO" (and sole board member) for Linspire. (Click image to enlarge.)
It should be pointed out that "The stockholders voted..." and "...the stockholders approved a plan..." really means "Michael Robertson voted..." and "Michael Robertson approved a plan..." since the minority shareholders were not asked to give input. This is the third time, that I'm aware of, that Michael has done things by written consent, without any shareholder meeting or input. The first time was when he fired everyone from the board of directors other than himself, the second time was when he sold Linspire to Xandros, and now this time when he said he'll be dissolving Digital Cornerstone, Inc. Those are all pretty significant events to do on your own, without other board members or shareholder meetings.
According to this latest memorandum, Michael has a plan to "distribute [Linspire's] assets." I wonder what the minority shareholders will be getting? Considering I offered to purchase shares in the company at $.50 per share just one year ago, let's see how good a job Michael Robertson did in running Linspire this past year. Will the minority shareholders see more than $.50 per share? The same? Less?
Also, about a year ago, I presented a plan to Michael to have the company offer to buy back stock from shareholders at $.50 per share. Michael turned down that plan, saying that the company needed to keep all its cash to run the business. He obviously felt by keeping all the cash in the company and running the business himself, that he could make the shares worth more than $.50 per share. So, let's see how Michael performed for the shareholders. Did he turn water into wine, or into toxic waste? (From my vantage point, this is what it appears he's done this past year.)
Lastly, I'm curious how Digital Cornerstone, Inc. could be dissolved when they have ongoing litigation? Just one example is I know they are being sued by a former employee because Linspire did not honor his employment agreement.
I stand by my assessment, that the Xandros deal was all just a big ruse by Robertson to take all the assets and cash for himself, leaving the minority shareholders with nothing. I believe that dissolving Digital Cornerstone, Inc. is simply the next step in his "I-hope-everyone-forgets-about-all-of-this" plan.
Prove me wrong Michael. Anything north of $.50 per share distributed to the minority shareholders and I'll happily eat my words. Anything less than that, however, then in my mind you're either a lousy businessman (who made a bad judgment in not doing the stock buy-back plan), a thief (who took unauthorized funds for yourself, father-in-law, and/or your other businesses when YOU SAID all funds needed to remain in the company for Linspire to succeed), or you simply never intended to "take care of your peeps" all along (and just wanted to see everything go to you).
Stay tuned. I'll be sure and report back what's left for the 100 some-odd minority shareholders.
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.
When I left Linspire there were lots of assets in the company (computers, furniture, servers, trademarks, employees, and millions in cash), and virtually no liablities. What happened to these assets and cash?
I have been contacted by several Linspire employees and shareholders, asking me what the Linspire asset sale to Xandros means. I put together this short video using "buckets" to try and explain what happened in very simple terms, based on what information was provided in the 3-paragraph "memorandum."
Since Larry and the other employees now work for Xandros, Michael appears to be the only remaining employee of Digital Cornerstone, Inc., the company we now all own shares in.
So, Michael, the shareholders want to know...
1. What assets remain in the company?
When I left, there was a lot of cash in the account. I assume this has grown, since you sold off the other assets to Xandros.
2. What is the value of our shares?
When I left, I offered $.50 a share to buy stock in the company. The shareholders are all curious what their stock is worth today, ten months later. Have you grown or shrunk the company since then? You always told us to trust that you would take care of the employees and shareholders. Time for you to honor that trust.
3. Since all the assets have now been sold, how do we cash in our shares?
Perhaps Michael is hoping we'll all just forget about "Digital Cornerstone, Inc." and he can keep all the assets for himself? Perhaps he'll use some clever legal maneuver to make sure the 100 shareholders never see anything for their investment in Linspire? Perhaps instead of cash, we now all own Xandros stock or shares of Michael's other companies (both worthless in my opinion).
Without Linspire ever holding shareholder meetings, we remain in the dark, and left to speculate.
Here are just some of the many employees who worked for Linspire over the years (as found on the Linspire website from a Linspire Letter), many of which paid cash to exercise stock options and are now shareholders. Michael asked them all to "trust him."
I have no intention of forgetting, as I'm sure is the case with many other shareholders. I would suggest that Michael Robertson hold a shareholder meeting ASAP to answer these questions.
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