Arbortext Royalty Fraud: Chapter Fourteen

Crime Marches On

 

The Invoices Joyce Svechota had sent us to prove Arbortext’s honesty did little to accomplish that, but did provide Blueberry with two valuable pieces of information.

First, it gave Blueberry hard copy Invoices that fixed in time what a significant portion of the Accounting records looked like as of June 30, 2002, with entries going back two years. Should Arbortext attempt in the future to rearrange the books a tad, it would be quite a bit harder than simply shredding documents or creatively re-editing old Invoices. The mountain of Invoices we now had could not ever be erased. Nor could their Invoice numbers or contents somehow change. Not that we were thinking that affairs with them would ever get to some sort of scandalous legal and perhaps criminal level, but, well, it did enter our minds. These Invoices are carefully preserved to this day.

Second, it showed how Arbortext had gradually tweaked the way it recorded information about its sales vis a vis Blueberry related items. At the signing of the contract, E3 sales were simply recorded as a one line item on an invoice with no other description. That is, Interchange was assumed to be bundled with the product and no mention was made of it in the line item.

Along the way, however, line items and new SKU product numbers for them began to appear that specifically applied to Interchange, and even these items further experienced their own evolutionary growth through the coming months. Arbortext began to break Interchange related sales out from the complete sale and assign it a monetary value as a component of the full sale. It was this value, not the original full price value of the Arbortext Covered Product, that they began extracting from their system to pay Blueberry royalty percentages from. Of course, Blueberry had no way of knowing this bit of contract slight-of-hand. Until Joyce sent us the Invoices. But it did show the methodology Arbortext used to “limit” and keep “limiting” Blueberry’s royalty amounts. A methodology still undergoing changes, as we shall see (to Blueberry’s detriment, of course), as late as 2005, five years into the contract.

It was hard to get a handle on Arbortext’s company flow chart regarding their accounting system output. In the beginning, Blueberry got royalty reports directly from the company controller, Cherie Van Allen. This would seem a normal and proper communication channel. Royalties were, obviously, a financial accounting matter. As we have seen in earlier chapters, and shown by Exhibit B, these reports were clearly either abysmally and comically inept or simply lies. Deceiving someone with written information that allows the person doing the deceiving to experience financial gain is one of the basic definitions of Fraud. Fraud is a crime. And a felony.

It is beyond belief that Arbortext could or even would try to claim that their company accounting system was run by a controller who didn’t have a clue what she was doing. So, for purposes of argument here, we will discard that notion and discuss its alternative: Criminal Fraud.

At the time Blueberry signed a contract with Arbortext, Jim Sterken was the CEO and co-founder/owner. Cherie Van Allen was the controller. Is it really possible to postulate that Sterken knew nothing of this Fraud that Cherie Van Allen was perpetrating? In other words, did she just decide on her own to spice up the revenue picture by selecting a vendor to rip off? Not informing or consulting with her boss (Jim Haggarty?) or the owner and CEO Sterken? The one who had signed the contract and presumably ferried it back to Ann Arbor for implementation and adherence.

If this seems rather unlikely to you, it certainly did to us, also. Which would mean that the entire upper management team at Arbortext – Co-owner, Controller, CEO, and CFO – were conspiring to commit and profit from Fraud.

The question that Mary and I asked ourselves, and would someday dearly like to have an answer to, is: Did Arbortext only defraud Blueberry, or were other vendors also cheated? Was the accounting system manipulated only for us, or did it have a more pervasive policy? I suppose it’s only a question that affects our own self-evaluation. Were we special (i.e., dunces, easy marks) or were we just one of many. If the latter, of course, then the question would have material interest to other companies and their own royalty reports or payables due from Arbortext.

Supporting this latter view, if only philosophically speaking, is the following.

Among the items that Joyce Svechota sent us was a copy of Arbortext’s Internal Price Guide. This Guide was directed at their sales force and was a description of their products and how to gouge as much money out of potential customers as was humanly possible.

Regarding Interchange, our product, the sales people were advised that “Interchange is listed only in this ‘internal’ version of the Price Book because we should only sell it when we cannot sell E3 for the same purpose. Customer and Reseller versions of the Price Book omit all references to the Interchange option.” The same advice and statements of omission were used to describe their Print Composer product and their Web/Wireless Composer. These three product “options” were essentially all E3 amounted to. Without them, E3 did virtually nothing except reside on a server in cyberspace.

In other words, regarding Interchange, don’t let anybody know they can buy it for $1,200 as an add-on to the $695 Epic Editor product if the customer can be pushed toward purchasing the $50,000 Epic E-Content (E3) product to achieve the same Interchange functionality. Another indication that Interchange was considered by the company to be a standard, bundled (and very strategic) part of E3, and not, as their invoices would later start reflecting, an option with a posted price that could be added into the purchase. The price Arbortext started assigning to Interchange and then on to Blueberry was only visible, it seemed, after a full sale had been made and it became a listed item on the invoice. How could it be otherwise if both the Reseller and the Customer were not informed and did not know that Interchange was an option?

What a wonderful company. It was hard to tell who they screwed the most, their vendors or their customers. Fudging and scratching and clawing in the dirt for every single penny they could possibly scrounge out of the world around them. Ethics, fairness, honesty, and even legality be damned.

Perhaps I’m being naïve. Maybe this is just the way large American corporations routinely do business any more, and Arbortext, except (possibly) for the fraud part, is no more or less ruthless than other companies. Parametric Technology, the company that eventually bought Arbortext, is almost routinely involved in one law suit after another for various fraudulent activities, either by them or against them. In 2007, Parametric was sued for stealing some $40,000,000 from another company through a convoluted scheme based in Japan. Parametric has been sued once, perhaps twice, by its own stockholders for making funny with the books.

My own naïve view is that America used to be a place where, by and large, people conducted business honestly and fairly. Having ethics and morality was a standard necessity of functioning peaceably with the society around you. That seems to no longer be the case, and may never be again.

R.I.P. Business, as a noble profession. Snake Oil Salesman has won the day. Resoundingly.

It was humorous to note that the price of our Interchange ($1,200) was higher than the price of their actual product, Epic Editor ($695). But understandable. Epic Editor was a standalone text editor which created XML documents from scratch. A real DOG. But with Interchange capability a whole world full of already created MS Word, Framemaker, and Interleaf documents could be imported into this barking editor converting the documents into XML during the conversion process.

Joyce also sent us a complete list of the Arbortext product SKU accounting numbers for each line item that could occur on an invoice. Mary, of course, immediately absorbed this list into her seemingly bottomless well of comprehension, while I glanced at it and glazed over. She then pointed out to Mr. Glaze Over that there were Annual License SKUs, Site License SKUs, Catalog Appication (i.e., Intermarket) SKUs, Interchange maintenance SKUs – none of which were on our royalty reports nor was any attempt made to even extract them from the accounting system in the first place.

It was undeniably clear to Mary and I that Arbortext had been methodically cheating Blueberry during the entire time Kevin Dwan was handling the account. Other than demurring over the first royalty report from Cherie Van Allen that contained no sales or invoices whatsoever, he had never again, to our knowledge, questioned any report they slopped into his mail box once per quarter.

Now that we had questioned the reports, and shown a bit of pique over their falsity, Arbortext had switched from pleasant deception to brute thievery.

Dwan’s world of never challenging the powers that be, even if they were cheating him (and it’s unsure if he did in fact even suspect this), ensured that at least some royalties would always come in. He would view what Mary and I were doing as suicidal and righteously, through his blow hard attorney, point to our current royalty check that was M.I.A. as proof that gutless was the correct strategy.

Mary and I did not subscribe to this notion.

 

To be continued . . .