Arbortext Royalty Fraud: Chapter Thirteen

In Your Face, Blueberry: LOL, Jim Sterken

In late July of 2002, the second quarter Arbortext royalty report arrived. It was not, however, accompanied by a royalty check, as required by the contract. Instead, it was accompanied by a box car’s worth of data and explanations from our dear sweet Joyce Svechota.

The Director of Product Management had obviously been quite busy since passing along to us her March “We found some additional royalties” report. I’m not aware of what, exactly, a Product Manager’s responsibilities are. But in Joyce’s case, whatever those duties were seemed to be getting stretched farther than a pair of tights on an elephant.

Was Joyce’s title some sort of Brave New World lingo. Did the entire accounting department report to her so she could manage their output? Was this really how honest businesses provided financial data to vendors, stockholders and federal, state, and local agencies? Through the Product Manager’s filter?

We were beginning to wonder if, in fact, Arbortext even HAD an accounting department or any employees who worked there. But, at long last, Joyce’s box car load bubbled one to the surface.

And a new co-conspirator entered the picture: Jim Haggarty, the CIO and acting CFO, had affixed his signature of approval to the royalty report sent to us. I suppose he could have done this perfunctorily, perhaps at Jim Sterken’s bidding, without actually knowing what the hell he was signing his name to. Still, when the CFO signs off on a document disseminated to a vendor regarding what is due to that vendor, one has to impart some degree of culpability to the act. Sorry, Mr. Haggarty. You signed your approval of a fraudulent document. Get over there in the criminal wing of this building.

Where to begin.

We were two years into our contract with Arbortext now and Joyce was suddenly informing us that Arbortext had been utterly and totally inept in keeping proper track of the royalties we had been paid per contract. This was hardly news to Mary and me! However, in Arbortext’s sweeping new enlightenment, they had come to realize not that Blueberry had been grossly underpaid, but that it had been grossly overpaid!

An overpayment amount that exceeded the entire second quarter royalties due Blueberry and thus once again tossed Blueberry into the red, owing Arbortext rather than them owing us. The $7,500 minimum guarantee provided by the contract was dispensed with also, perhaps for emphasis. In your face, little people! Get a clue! The contract is of de minimus importance! You’ll get what we give you, slap, slap. And you’ll take it, slap, slap. And you’ll like it, slap, slap.

For some strange reason, I did not react to this news in my usual volcanic fashion. In fact, a sick part of me smiled from ear to ear. Jim Sterken had obviously blown sky high over recent events and had become so out of control that he was willing to jeopardize the entire Arbortext company, and the reputations and welfare of the people who worked there, solely to vent his rage on one little vendor who had called him out. A vent that resulted in a document that was so clearly and blatantly criminally fraudulent that no legal team in the world could possibly gloss over its damage. All they could hope to do in the future would be to cover it up.

“Why are you smiling?” Mary asked. “We just got wiped out.”

“I know. I’ll be angry and depressed later. Right now, I’m remembering something Sterken said to me in an email last year. He said to be careful what you put in writing because it could come back to bite you in the ass.”

“Why would he tell you that?”

“He was cautioning me to watch what I wrote to Dwan in my emails. Not to get careless with my anger. He thought I might end up in court with Dwan some day.”

“He was right about that for sure.”

What Joyce had sent us amounted to a completely new contract, drawn up solely by Arbortext, without any input or approval from Blueberry, as to how Blueberry would be paid. Appendix C of the original contract called for Blueberry to get a percentage of the Arbortext Covered Product that it was incorporated into. Appendix B listed those Covered Products (see Exhibit A). Pretty straight forward concept. Buy E3 with Interchange and Blueberry gets a percentage of the sale.

Joyce now informed us that Arbortext had realized that it was not properly applying “discounts” to our royalty payments. She did not bother to explain where the concept of discounts was mentioned in the contract. It was an oversight, she claimed, that had occurred from Day One of the contract and necessitated recalculating the entire cumulative royalty report for the past two years.

Also, the Interchange product was being assigned a monetary value representing 20% of the value of the entire Covered Product sale, from which amount Blueberry would now be getting its percentage, not from the entire sale itself.

In other words, an E3 sale for $50,000 (the List Price) would amount to a royalty of $5,000 to Blueberry at the 10% rate of the original contract. Under the new payment system now being imposed unilaterally by Arbortext, Blueberry would only be getting 10% of 20% of $50,000 – or $1,000.

In one fell swoop of the Svechota/Sterken/Haggarty brain trust, Arbortext had reduced Blueberry’s royalties by a whopping 80%! For all of the past and all of the future.

This whole scheme required that reasonable minds accept the concept that Interchange was incorporated into itself, not into an Arbortext Covered Product. Even though Interchange did not work at all unless called, via Blueberry’s API, from some other Product (like Epic Editor or E3). Well, acceptance by any minds at all was not of concern to Arbortext. Jamming down throats was the only concept they were concerned with.

They already had, for instance, never paid us for the Epic Editor with Interchange full price. Only for the additional cost of Interchange itself. We had not yet gotten around to complaining about that. Nor had they ever paid us any royalties on Maintenance sales as required by item 6.1 of the contract (“Royalties are due and payable to Blueberry Software for Blueberry Software delivered by Arbortext to both existing Arbortext Customers, whether provided on an upgrade or other basis, and to new Arbortext Customers.”) and by Appendix C, item 1 (“If Blueberry is offered to current or past users of Arbortext Products, or any users other than new users, at some charge, then revenue from such sales will be included in the computation of Arbortext Product Sales. Arbortext shall not provide Blueberry Software to others without payment of royalty, except upon the advance written approval of Blueberry.”). Getting them to simply report all applicable sales had been our entire initial focus thus far.

And this 80% reduction was only for the sales they actually reported. Which were simply whatever amount it took to “limit” us to about $30,000 per year. It seemed to be Joyce’s job to edit each and every royalty report to achieve the proper limitations. The fact that it took not reporting all sales plus an 80% reduction of the sales that were reported to achieve this limitation indicated that we were selling like hot cakes out there, just like I had envisioned when we signed the contract.

I was now, at least, not broke AND dumb. Just broke. I made a mental note to contact Guiness Records and have us removed from their list of incredibly stupid companies. And perhaps suggest to Guiness that a certain other company make their list for incredibly dishonest companies.

In addition, the box car load of invoices that Joyce sent to “prove” Arbortext’s honesty were numbered contiguously, yet had huge gaps in contiguity. A hundred or more invoices missing in the sequences. Causing us to wonder what was on the invoices Joyce hadn’t sent. Good old Intermarket (a.k.a. Zoltan Gombosi’s catalog management product) was certainly not yet visible in their sweeping update of the past. Nor was any attempt made via the query strings Joyce provided us, that were used to extract information from the accounting system, to even locate Intermarket’s SKU product code so it even could be extracted.

Mary had not understated our situation. Arbortext was responding to our complaints of their fraudulent royalty reports by creating reports that were even more fraudulent!

They were trying to wipe us out. But good.

To be continued Monday, June 30 with a further examination of Joyce’s box car contents . . .