Sale to Ingenu Was Not an Attempt To Dodge Debts, CSMI Executives Say

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Angry creditors of Contact Solutions Marketing Inc. have told DM News they are considering a lawsuit against the firm and its owner and CEO, Joseph Cavanaugh, after a transaction in which CSMI's assets were sold to a new firm, Ingenu, which moved into the same office space.


Ingenu, which was incorporated in January, is owned by an investor group led by Mike Fisk, who was vice president of business development at CSMI.


Cavanaugh is now president of marketing at Ingenu.


According to ex-employees who requested anonymity, a company "event" was held Feb. 5-6 at which shirts bearing the name Ingenu were distributed to employees. They also said they were told that they now would be employees of Ingenu.


Cavanaugh confirmed that CSMI's assets were sold to Ingenu but denied that the transaction was an attempt to defraud creditors. He said CSMI's creditors would be paid out of proceeds from the sale of the company's assets as the money becomes available.


Cavanaugh said he decided not to file for bankruptcy to avoid the administrative and legal costs associated with bankruptcy court, which would have burned money that should go to CSMI's creditors.


At least one creditor is mulling a lawsuit that would include the option of forcing CSMI into involuntary bankruptcy. Among those who have claims against CSMI:


• Howard Linzer, president of Macromark, New York, said he is owed $13,000.


Linzer told DM News that he has been unable to contact CSMI. Linzer said he talked with the mailer who had rented names from his client through CSMI. The mailer, whom Linzer declined to name, told him it had paid money to CSMI in full, he said.


• Carl Landon, president of LZL Inc., Bow, NH, said he is owed $10,000 to $20,000.


In addition, former employees claimed that CSMI owed as many as 50 creditors, including major data providers such as Experian, amounts totaling hundreds of thousands of dollars. Experian did not return a call for comment.


According to ex-employees, CSMI's payables exceeded its receivables by a substantial amount on any given month. They further claimed that money paid by list buyers to CSMI earmarked for list owners went into CSMI's operating budget.


Cavanaugh said there was no deliberate mismanagement of funds on his part.


"We're treating our creditors fairly," he said. "There was never an intent to 'pull a fast one' on our creditors."


List management firms said their suspicions were aroused when they learned of similarities between the two companies. Ingenu is located at CSMI's old address, 4646 S. 132nd St., Omaha, NE, and the csmionline.com Web site bounces to ingenuinc.com.


A former employee said the company shut down on a Friday in February and the new company opened the following Monday. Employees were instructed to be at the office for the company event - and were forbidden from absence for any reason. They received Ingenu shirts and temporary business cards, and the walls of the office conference room were repainted in the new company colors and affixed with new logos, the former employee said.


By the following Monday, CSMI's phone numbers would change, employees were told. They also learned Fisk would now be CEO and Cavanaugh would work under him.


Fisk told DM News that he and a group of investors bought CSMI's assets for "fair market value" and that he is running Ingenu as an entity independent of CSMI. However, he kept CSMI's online assets and is currently operating in its old office. As part of the sale, Ingenu agreed to take on more than $230,000 of CSMI's debt, Fisk said.


According to Cavanaugh, CSMI has paid back $130,000 to creditors in the past month or so. Secured creditors, including banks and lines of credit, are being paid first, while the list management firms and other unsecured creditors will be paid as the asset sale is funded, he said.


Investors are paying for CSMI's assets in phases, Fisk said.


Cavanaugh declined to speak about the sale of CSMI's assets to Ingenu and referred those questions to Fisk, who would not disclose the value of the sale of CSMI's assets.


Fisk would not identify the other investors. He said the company is looking to move to a new location by April, and the plan is to take Ingenu in a different direction: providing marketing technology and automation, analytics and profiling. Ingenu would provide data, as CSMI had, but that would be incidental to the technology.


CSMI, which at its peak had 28 employees, ran into trouble in late 2003 when a sales executive, David Dotson, quit to join American List Counsel and took all of CSMI's managed list business and many of its employees, Cavanaugh said. It also was about that time that CSMI discovered it had accounting problems as well, and Cavanaugh said he realized the business couldn't be saved.


Dotson acknowledged that he left CSMI in October to work for ALC. He said he went to ALC because of its infrastructure, management, research department and personnel.


"I felt it would be a better fit for myself and my clients," Dotson said. "It's proved to be so."


Landon said LZL started doing business with CSMI about a year ago and had no problems until last fall, when its payments from CSMI began to slow down.


CSMI had issued guarantees on payment dates to LZL that it failed to honor, according to Landon. CSMI executives promised payment dates but kept pushing them back, he said. In November, Landon said, he called Cavanaugh, who told him that the company was bringing in outside people to straighten out its books.


Landon said Cavanaugh told him in December that CSMI had $500,000 in receivables outstanding that it was trying to collect but would pay LZL by the end of the month. When that deadline came, Cavanaugh said it was taking longer than expected to collect the receivables and asked for another two weeks. He later pushed the payment date back to the end of January.


At that point, calls to CSMI were met with full voicemail boxes and e-mails with no response, Landon said. Cavanaugh never told Landon of his plan to sell CSMI's assets to Ingenu, Landon said. According to state records, Ingenu incorporated on Jan. 8.


In February, Landon received a letter from CSMI that he said was his last communication from the company. The letter, written by CSMI's law firm, Lamson, Dugan & Murray, was dated Feb. 6 and said CSMI was experiencing financial difficulties and had past-due debts.


The debts forced CSMI to sell its assets and go out of business, but the company would not declare bankruptcy because of "limited prospects for restructuring its debt," according to the letter, which was obtained by DM News. Bankruptcy would divert CSMI's assets to attorney and accountant fees, the letter said.


Because the payables greatly exceeded CSMI's assets, creditors would receive partial payment as funds became available, the letter said. It closed by promising payment as soon as the sale of CSMI became finalized. As of last week, Landon said he has not received any money.


Not everyone owed money by CSMI received the letter. Diana Arroyo, vice president of operations and finance at Carney Direct, Irvine, CA, said CSMI owes her company less than $1,000 but that Carney has not received any correspondence.


Arroyo was unaware that other companies had similar problems until one of them contacted her.


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