Steve Papermaster & Agillion losses

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Bankruptcy trustee claims Papermaster, other Agillion execs 'squandered' assets

Apr 22, 2003, 10:48am CDT

By Colin Pope – Austin Business Journal Staff

Six of Agillion Inc.'s former top executives have been sued by a U.S. bankruptcy trustee for the legendary spending sprees that bankrupted one of the most well-financed and well-known high-tech startups in Austin.

U.S. Bankruptcy Trustee Marsha Milligan -- the person charged with protecting the interests of hundreds of creditors collectively owed more than $20 million -- on Thursday sued Agillion co-founders Steve Papermaster, Frank Moss and four other executives and board members for breach of fiduciary duty, gross negligence and waste after they "irrationally squandered Agillion's assets," according to the suit, filed in Travis County District Court.

The suit comes well after Agillion burned through more than $60 million in less than three years -- and nearly two years after the company filed for Chapter 7 bankruptcy liquidation. At its zenith, the company employed about 125 people.

Agillion, which offered a Web service that helped businesses maintain vital information about their customers, filed for bankruptcy in July 2001 with about $100 in the bank. Just 15 months before, Agillion had $30 million in the bank, according to the suit.

Between the product launch date, Feb. 23, 2000, and the bankruptcy filing more than a year later, Agillion had only a "few dozen subscribers" to its Web-based service, the suit claims.

"Their revenue was so inconsequential that management never recorded a single dollar in revenue in their internal bookkeeping," the suit alleges.

Despite the poor performance, "Agillion's management increased their wasteful spending," the suit states.

The 17-page lawsuit -- filed by Donald Taylor of the Austin law firm Taylor & Dunham LLP -- contains a detailed list of events outlining Agillion's spending habits.

Among the events listed in the suit:

Spending more than $3 million on a 30-second commercial during the 2000 Super Bowl. The spot aired a month before Agillion launched its product.

Spending about $500,000 to take all Agillion employees on an all expenses-paid trip to Cabo San Lucas, Mexico.

Despite earning only a "few hundred dollars in the U.S.," Agillion opened an office in Australia, which closed six months later.

Agillion entered into a $13 million, 10-year lease at Stonecreek Park on North MoPac Expressway that the suit alleges was "lavish and unnecessary."

Tripling the size of its workforce only to lay off many within months.

Spending more than $430,000 during the first three months of 2000 to sponsor several events, such as South by Southwest, "Austin City Limits" and the 360 Summit.

Spending "tens of thousands" of dollars on several company parties, such as a "Casino Night" Christmas party in 2000 and a Super Bowl party at Dave & Buster's, where Agillion bought 168 bottles of wine.

An exhibit attached to the suit is a copy of a color photograph of Papermaster -- as the master of ceremonies during the Cabo San Lucas trip -- wearing a sombrero and riding a horse on the beach as he talks to his employees with a wireless microphone.

Papermaster was Agillion's co-founder and CEO. Papermaster stepped down as CEO in November 2000 and was replaced by Jim Travers, who is listed as a defendant.

Moss -- former president and chairman of Austin's Tivoli Systems Inc. software company -- was an Agillion co-founder and chairman of its advisory board.

Last August, Papermaster announced he formed and invested in an Austin-based software startup called CooperaTech Inc., where he is chairman.

Aside from Papermaster, Travers and Moss, Dennis Jones, Dave Henkel and Phillip London, who either were Agillion board members or officers, are defendants.

None of the defendants could be reached for comment.

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