For years these guys were partners with Cyber Entertainment Network.
Then, in 2002, JB, with the help of his attorney Steve Workman, locked
JoeE out of the business.
Despite rumors that these former friends were settling their differences,
a hard-fought legal case goes on.
Here's a copy of some of the publicly-filed legal work from Joseph
Elkind's team:
The Case of Fraud Perpetrated By John Bennett Against Joseph
Elkind
This document is a compilation of the evidence of fraud, diversion
of dunds, and diversion of corporate opportunities committed by
John Bennett.
Bennett's Theft Prior To The Structure Being Set Up
Bennett began his theft of funds before the structure was set up.
Victoria Garrett was deposed in the case of Hurren vs. NetVision
Audiotext. (NetVision AudioText was the name of the business before
the offshore structure was set up.) Because Ms. Garrett was the
Chief Financial Officer, she was in a position to know about the
things brought out in her deposition. Therein she made it clear
that John Bennett had been stealing from Mr. Elkind. He had been
doing that by directing Victoria Garrett to transfer significant
sums, without Elkind's knowledge, into a number of companies that
he had formed. Elkind was never given his fair share of the money.
At page 177 of her deposition she testifies as follows:
Q: Last Tuesday in your deposition you also testified that, I
believe, that Mr. Bennett had directed Epoch on at least one occasion
to send monies to an account in Fort Lauderdale that was not a
CEN account. Do you remember that testimony?
A: Yes.
Q: And you indicated at the time, I think, that Mr. Bennett had
caused approximately $28,000 to be sent to this account in Fort
Lauderdale. Do you remember that?
A: Yes.
Q: And again, can you describe in a little more fully the circumstances
surrounding that sending of $28,000 to a bank in Fort Lauderdale?
For example, I think you indicated last time that the account
was set, the bank account was set up in the name of Mr. Bennett,
was that your testimony?
A: Yes, he had about six or seven accounts that were set up through
himself and his sister. They were various variations of JJB, BBJ,
JJB, different, all the different initials used different ways
with his sister's address in Pompano, and they were set up in
Northern Trust and in First Union.
One of these companies was LJB Internet Services Inc. Just as testified
to by Vickie Garrett, "LJB" are the initials of Bennett's
sister. Attached hereto as Tab 2 is a check from LJB made payable
to Edward Dinna Trust Account. This is a very surprising document.
First, Elkind had no knowledge of this account. The address on the
check is 2456 Bayview Dr. This is John Bennett's home address. There
should be no reason to divert banking information to his home.
The payment made by this check is for the last portions of sums
recovered by Bennett and Elkind in civil litigation against their
insurance carrier over litigation with America Online. The total
amount of the settlement was $1.125 million. Elkind was not notified
of the settlement and his share of the proceeds were sent to the
IRS by Bennett for back taxes. This was done without Elkind's knowledge
or approval. When questioned by Dinna about this Bennett admitted
that he wanted to keep the money out of Elkind's hands so it would
make it more difficult to litigate.
Whether hiding this theft and presumably other theft was a reason
for the set-up of the structure is an open question. However upon
further investigation it has become obvious that the structure was
set up for the specific purpose of defrauding Joseph Elkind.
THE DIVERTED PROPERTIES
Emailbucks
The most glaring example of diversion by Mr. Bennett is Emailbucks.
This was one of the most valued properties of the structure. If
one types "Emailbucks.com" into a web browser, they are
taken, not to this property, bto to a property known as "Combocash."
Copies of the web pages for Combocash are attached as Tab 3. Any
assignment of the right to use or transfer this name was not consented
to by Joseph Elkind.
At the settlement meeting in the Bahamas, Bennett first informed
Elkind of the fact that he had decided to lease the name Emailbucks
to Fabian Buys for the sum of $18,000 per year. Buys is an equal
owner of Emailbucks with Bennett and Elkind. This $18,000 was in
addition to a charge of .03 per email. Traditionally Emailbucks
sent out between 40 and 60 million emails per month. At that rate,
the revenue from this property alone should be approximately $15
million per year. From this revenue would come profit which would
be owned 66% by the structure. Fabian Buys sent an email to John
Bennett sometime before 2001 wherein he acknowledged that the profit
of Emailbucks was up to $400,000 per month.
WRONGFUL MISAPPROPRIATION OF DOMAINS/WEBSITE NAMES
The businesses' most important assets are its domain names. Each
domain name has what is known as an IP address. This is how traffic
gets directed to the company's income producing sites. Whoever
controls the domain names controls the company. Early on in
the life of the structure the domain names were appropriately placed
in the name of Virtual World Holdings.
This is significant because Elkind and Bennett equally, through
their trusts, own Virtual World Holdings. Incident to the set up
of the structure Virtual World Holdings executed a note in favor
of Elkind and Bennett in the approximate amount of $14 million.
The value of the note is tied directly to Virtual's ownership and
control of the domain names.
In November of 2001, Elkind had yet to be excluded from the business.
Without Elkind's approval and behind his back, [Steve] Workman caused
the transfer of the most valuable domains to a company known as
"Cog Hill." In an email from Workman to Fabian Buys' employee
Shaliza Somani, he states:
Shaliza, assuming you or Fabian have begun shifting the more
important domains from Virtual to Cog Hill, these cannot go directly
to Cog Hill... There can be no connection seen between former
CEN and Cog Hill.
So yes, these should go into Virtual, then at some point in the
not too distant future, from Virtual to Cog Hill.
This is the same Fabian Buys who participated in Bennett's diversion
of Emailbucks to Combocash without Elkind's approval.
It is important to note that Workman copied Bennett n the email
but not Elkind. This transfer is outright theft. The purpose was
to keep the domain names and consequently the value of the business
out of Elkind's direct or indirect control. This would also have
the effect of having the value of the Virtual note reduced.
In all of the joint requests to the POTC it states that the Virtual
note has been assigned to yet another two entities Bonus Reef and
Sage. The joint requests were all drafted by Richard Cahan. He knows
that the Elkind portion of the note was never assigned to any entity
yet he keeps insisting on putting this in the written requests.
Attached as Tab 6 is the diagram of the offshore scheme prepared
by Cahan.
Nowhere on this diagram does "Cog Hill" appear.
If this was anything but pure theft, it would appear. Why was it
necessary? Why was Elkind's approval not sought for these transfers?
PUNDA INVESTMENTS
Some time after the structure was put in place, Bennett started
and controls a company known as Punda Investments A.V.V. This also
does not appear on the offshore diagram. There is a substantial
amount of money that has been diverted to Punda. The documents show
approximately $30,000 per week being transferred to Punda and consequently
Bennett. Weekly reports for Punda are attached as Tab 7. Also attached
are confirmations of wire transfers of this money.
These are not legitimate transfer of money. It is a simple diversion
of money. Net Management maintains a log of payments to webmasters.
This is the only type of business transaction that would justify
this type of payment. There is no record which support any
payment to Punda.
Copies of the webmaster payment log which should provide evidence
to support payment to Punda and does not are attached... There are
certain "house accounts" which say "do not pay."
These represent "cross sales." A cross sale is one generated
by an in-house website and hence there is no payment that must be
made to a webmaster for the sale. They are the same "cross
sales" that Bennett and his lawyer Leonard Samuels told the
PTC no longer exist.
The "Other" Network
Fabian Buy acknowledges in an email dated March 13, 2002, shortly
after Elkind's exclusion from the company that there is a new network
being set up. That email is attached. Therein in a response to Bennett's
warnings about U.S. law he states:
"So they will come and get me in...China/Aruba/Curacao/dominica/spain?
Problem will be solved within approx. 10 days when the 'other'
network is up and running."
There is additional evidence that Bennett has in fact set up another
network. Attached...are earnings reports. There is one for Net Management...which
includes: Dellwood, Emailbucks, and 1-Verification Systems.
However there is also one titled "Other Accounts Earnings
Report" wh ich includes Golden Valley, Oakley, Naughty Webcams,
and New Castle. None of these are included in the structure diagram.
This is at least part of the "other" network referred
to by Fabian Buys.
Just like Naughtywebcams, Oakley, and New Castle are Bennett created
and run companies. It appears that there is a wholesale diversion
of Net Management sales to these entities. Oakley has its office
located at the offices of Net Management in care of Bennett's sister
Lisa Bennett.
New Castle...is another entity to which business is being diverted.
Attached...shows a substantial amount of money due to "Firefly."
This is a Fabian Buys property which is run by Shaliza Somani. She
is the same person who transferred the Virtual World Holdings domains
to Cog Hill.
FRAUDULENT FINANCIAL STATEMENTS
Company sales grew exponentially while Elkind was still in the
business. After Elkind was improperly excluded, the financial statements
began to fraudulently state that sales were dropping. In addition,
key financial ratios became grossly inconsistent with the historical
ratios.
The structure that was set up is commonly referred to as the "Breakers"
structure. Throughout the course of the life of the structure, it
has been extremely difficult to obtain financial statements as the
ATC, the trustee of the "Breakers" structure has been
under the total control of John Bennett.
Year Annual Sales Webmaster Payout Percentage
1997 $817,511 3%
1998 $6,110,492 37%
1999 $26,899,032 35%
2000 $45,408,725 38%
2001 $32,772,553 39%
2002 $42,856,435 43%
2003 $10,695,799 50%
It is clear that any figures reported after the structure began
in the last seven months of 2001 are very suspect.
In the fall of 2002 a settlement conference was held with former
federal judge Thomas Scott. At that time Bennett, through his lawyer,
Leonard Samuels, presented Elkind with financial statements for
the year end 2001. The hope was that Elkind would rely upon them
and sell his interest to Bennett for an artificially low price.
These statements were given to Elkind fully nine months after the
period to which they pertained had ended. These statements reflected
a false sales figure of $24,207,247. It reported net income of $2.6
million. When the "correct" financial statements were
provided they showed a net income of $4.3 million.
When the year end figures were provided for 2002, the purported
results for the fourth quarter were alarming. Bennett wanted Elkind
to believe that sales had precipitously dropped to $3.7 million
a month. He also wanted Elkind to believe that the company had sustained
its first quarterly loss...
WHAT THE FINANCIALS SHOULD LOOK LIKE
Based upon the July 8, 2003 statistics reluctantly given by Bennett,
the Financial Statements should show total annual revenue for Traffic
Cash only of approximately $90 million.
Bennett sent an email dated November 25, 2001 to CCBill...one of
many credit card processors for the company. Each new signup is
a sale. In this email Bennett represented that he would deliver
6000 signups per day to this one processor alone.
FALSE STATEMENTS MADE TO THE PRIVATE TRUST CORPORATION BY BENNETT
In July of 2003, a settlement conference was held at the offices
of the Private Trust Corporation. Bennett was accompanied by his
lawyer Leonard Samuels. The gist of Bennett's presentation was that
the company's business was declining for a number of reasons. He
claimed that there was no longer any cross sales owing to new VISA
and MASTER CARD rules.
Bennett...provided access to statistics for one day for Traffic
Cash Gold. These statistics show that Mr. Bennett lied about the
business being reduced. They also show the existence of numerous
cross sales.
THE ATC IS BREACHING ITS FIDUCIARY DUTY TO ELKIND BY SIDING
WITH BENNETT
On many occasions the ATC has acted unfairly toward Elkind at the
request of Bennett.
First, the ATC has intentionally held back financial statements
from Elkind.
The ATC is the trustee of Mr. Elkind's company Oakmont.
Second, the ATC participated with Bennett in allowing the payment
under an interim settlement agreement to be made with these funds.
Third, ATC, at the direction of Net Management initiated a prepayment
of Elkind's start up loan for the purpose of paying Elkind $202,000
due under the initial Interim Settlement Agreement. This was supposed
to be a consulting fee.
Fourth, the final settlement which was reached in the Bahamas but
never reduced to writing was drafted by Peter Goddard, the lawyer
for the ATC at Bennett's direction. In addition thereto, ATC held
up the wire of the initial $1 million payment despite having a joint
letter of request. This was at the direction of Bennett and Workman
who were attempting to condition this payment upon Elkind putting
his shares in escrow prior to the execution of a final settlement
agreement.
THE FRAUDULENT PURPOSE OF THE STRUCTURE
The structure was set by Becker
& Poliakoff who advised that such a structure was beneficial
for two reasons. The first is that the structure is supposed to
provide asset protection. Contrary to this advice, it provides no
asset protection. The ATC, through Peter Goddard, has made clear
that the amount of money to be reserved in Breakers is related to
the potential judgment in the Perfect 10's litigation. If there
were any asset protection, why would there have to be reserves setup
for this lawsuit? When it came to the AOL litigation, the structure
provided no asset protection. If it did, there would have been no
nee dto pay AOL the millions of dollars the company agreed to pay.
The second reason for setting up the structure was tax avoidance.
Becker & Poliakoff
retained Timothy Scranton Esquire of the law firm Ten State Street
to give an opinion on the tax implications of the structure. Mr.
Scranton has confirmed that his opinion deals only with the issue
of reportability and not taxability of Income.
In order for the Ten State Street opinion to have any validity,
there must be no U.S. source income. The opinion obviously assumes
that the file servers can not be located within the United States.
Mr. Bennett acknowledged at the meetings in the Bahamas that the
file servers remain in the United States. There can be no argument
that, with the file servers in the U.S., they are generating U.S.
source income. The premise upon which this entire structure was
set up to avoid U.S. taxes, which was dubious at best, has been
defeated by John Bennett's own actions. Despite knowing this, he
refuses to comply with the United States taw laws and he is brazenly
participating in the crime of tax evasion.
Tax experts have informed that even if the file servers were not
in the United States, the whole structure constitutes tax evasion.
Edward Cherry was a lawyer who worked for one of the company's
major credit card processors, iBill. Because the company gave so
much business to iBill and because iBill was having constant issues
over Net Management's billing practices, Edward Cherry was in regular
meetings with Net Management's corporate counsel Steve Workman.
Workman's behavior will be examined below. Mr. Cherry has stated
in his affidavit and testimony that Workman admitted that the structure
was setup for the purpose of putting Elkind out of business.
There is compelling proof of this illegal and fraudulent motive.
Before the structure was set up, Bennett had hired an investigator
to surveil Elkind for the purpose of gathering evidence that Elkind
had violated his employment agreement. This employment agreement
had yet to be signed.
THE USE OF ELKIND'S LAWYERS AGAINST HIM TO COMPLETE THE FRAUD
Kenneth Knox
Incident to the set up of the structure Elkind signed an employment
agreement. Why he might need one is a mystery. This is the employment
agreement that was supposedly breached by Elkind for which he was
terminated. Bennett was trying to prove this agreement was breached
before it was signed by Elkind. In order to contrive a formal presentation
that would end in Elkind's dismissal, Bennett, through Workman,
hired a lawyer Kenneth Knox. Knox is with the law firm Fisher and
Phillips. Elkind has sued Knox and his law firm.
Knox was Elkind's own lawyer. Although he first denied this in
his testimony, the evidence is apparent that he represented Elkind,
and that he disregarded Elkind's interest and chose to protect John
Bennett's interest. Under American law this is the worst thing a
lawyer can do to a client. The common euphemism is that Elkind was
"sold out" by Knox.
Steven Workman
Steve Workman is the in-house counsel for Net Management. He is
not a member of the Florida Bar. He was refused admittance to the
Florida Bar as a result of his failure to disclose prior problems
on his application. Mr. Workman attempted to have the Private Trust
Corporation fire Elkind. To its credit, the PTC remained neutral
and refused to take this action. Mr. Workman was rebuffed in his
attempts to have the PTC fire Elkind in a letter sent by the PTC's
lawyer Miranda Monroe Evans. Undeterred, Workman obtained an opinion
letter from Kenneth Knox which recommended that Net Management fire
you. We were shocked when we took the deposition of Knox to find
that he had been mislead by Workman into believing that you no longer
had an ownership interest in the structure.
In an email, Workman instructed Ken Knox to:
"Get on the phone to attorney Ed Dinna and tell him we are
not putting up with s--- from his client. Tell him that if Elkind
or any of his lackeys contact our employees again, he will get
zero, zilch, and he can look to the courts for whatever justice
he can obtain, he can starve for two years while litigation slogs
slowly through the courts system for all I care."
This attitude of crush Elkind at all costs continues. Most recently
Workman has been given to sending extortionate emails to Ed Dinna.
This was sent in an attempt to coerce Elkind into taking an unreasonably
low settlement offer. On May 4, 2003, he clearly communicated a
threat to Elkind and his lawyers. Elkind, because of the actions
of Bennett, has substantial tax problems with the Internal Revenue
Service. Workman states:
Ed, In your conversations with the IRS, I am sure you have discussed
Joee's ICE business.
If you have not,,,hmmmm,, that would be bad,,perhaps I should
meet with Agent Shaw to ensure you and your client are being truthful
to the IRS.
Call me so that we might avoid disaster for you, Mineo and Goldstein...
I think there may be some lawyer complicity in money diversion,
if not laundering...only the facts will decide, won't they.
You changed the rules from trust to non-trust....so do not blame
me when things rough and decidedly nasty.
CONCLUSION
It is difficult to imagine a more compelling case against John
Bennett. He was stealing from Elkind before he started the structure.
He wanted Elkind out. He began to plan Elkind's removal before the
structure was in place. He used Elkind's lawyers to accomplish this
task. When Elkind was removed, he tried to starve him. All the while
he has been stealing and diverting money and corporate opportunities.
There are no tactics which are off-limits for him including extortion
and cooking the books.
Elkind has nowhere to turn to but the PTC because the American
courts have referred the matter to the Bahamas for arbitration.
Bennett has refused to pay for this arbitration or submit his claim.
Every day that goes by the theft continues. The PTC is the legal
owner of the structure from both parties and it should not let one
"partner" dictate to the other and steal as Bennett has.
..........
Edward Cherry of iBill said:
A. Sometime after Steve Workman retained Becker @ Poliakoff, and
then Richard Cahan facilitated the restructuring, Steve and I began
getting into heated discussions about Joe Elkind. Steve was telling
me that he's coming at 3:00 o'clock in the afternoon, he's doing
all sorts of drugs. And I said, 'Steve, have you seen him do drugs?'
And he says, 'No.' And I said, 'How do you know he's been doing
drugs?' And that's when he starts telling me that, 'We've had a
private investigator follow him because he doesn't know this, but
in his management agreement, all he has to do or all we have to
do is show the trustee that there's some triggering event in the
management agreement, and then the trustee, without any court order,
would cease funding Joe Elkind's interest in the company.'
Q. Had the management agreement been signed by that time?
A. I don't know. I stopped Steve Workman. I said, 'Let me get this
straight. You mean to tell me that you've already know that Joe
Lkind has potentially violated the restructuring management agreement,
and that at any given time, you could contact the trustees and cut
off the funding?' And Steve said, 'That's absolutely right.' And
then he used the comments, 'We're going to be pushing him out of
the company. It's definitely happening.' At that point, I went in
to my CEO, and told him: 'I know that Joe Elkind and Steve Workman
were initially great friends because they both partied together,
and that at this point in time, it looks like they're trying to
push one of the partners out.' I told Garrett Bender that there
could be potential exposure here at I-Bill if we help facilitate
that.
[Steve Workman] presented to me ...that [Joe E] won't stay off
the e-mailing. He won't stay off the boards. He's becoming a liability
to the company. We don't want to pay him out any money. It's easy
for us to get him out of the company using the management agreement
which is a solid document that the trustees will acknowledge where
we won't have to go through hoops and hurdles to get him off the
premises and out of the building.
DIRECT EVIDENCE OF ILLEGAL BUSINESS PRACTICES
In the adult internet business, it is necessary that credit card
processors be used. This is because the chargeback rates on these
types of transaction are so high that it is difficult for a company
such as CEN/Net Management to get a merchant account. The high chargeback
rates are caused by illegal tactics...by Bennett and Workman...
They typically give "free trials" the fine print which
is hidden will generally say something like "automatically
rebilled after 30 days unless cancelled." They also engage
in "cross sales."
The use of these practices are easy to prove. One need only go
on a Net Management site and look at the sign-up page. Rather than
choose a cross sale, one has to decline or the charge happens anyway.
This is so for both cross sales and free trials.
...Bennett and Workman have engaged in "banging" of credit
cards. This is an industry term which describes the unauthorized
charges to credit cards. This is a highly illegal practice. To prevent
this practice, most states including Florida have laws which impose
criminal penalties for the misues of lists of credit card data.
Bennet and Workman apparently understood all too well the importance
of compiling the list of the customers' credit card information.
As Mr. Cherry testified:
Q. If somebody goes on to a Net Management site and they type
in their credit card...
A. Correct.
Q. Net Management is not supposed to capture that information?
A. That's correct, unless they're a merchant.
A. And if they capture that infromation, are they doing something
illegal?
A. I think they may be doing something unlawful, tortuous. I
don't know if it's criminal. There's a statute in Florida that's
called credit card list prohibited. And you're prohibited in the
state of Florida to compile credit card lists, so that theoretically,
if they're compiling a credit card list, it would follow that
the possibility exists it was unlawful.
Q. Do you know whether they were doing it.
A. I know for a fact they were doing it.
Q. Why would iBill allow such a thing?
A. The reason I was told why they allowed it is because John
Bennett complained that our technology was no good and that his
technology was better, so that if he had the ability to collect
credit card numbers up front, he could then batch them out to
us and we could process them at a separate time frame...
The credit card data base was then shared between a company called
Babenet and Net Management. Net Management then engaged in the highly
illegal practice of "banging" each other's credit card
databases. This was discovered by iBill's fraud and compliance officer
Nicholas Toth. What he found was a large number of transaction wherein
the same credit card had been charged for both Net Management and
Babenet very close in time there was no corresponding link between
the two sites.
In order to deal with the problem of high chargebacks, Bennett
and Workman resorted to bank fraud. As Cherry describes, there were
times when Net Management would have 20,000 to 30,000 transactions
from sequentially numbered credit cards from a foreign bank hit
all at once and be three seconds apart.
Q. They had to do something to lower the chargebacks?
A. Absolutely and I have personal knowledge that that absolutely
happened. There was absolutely, on one occasion, 40,000 transactions
from a Lebanese bank. Another in excess of 30 or 40,000 from a
Panamanian bank, another in excess of that amount from a Canadian
bank.
Q. Presumably what would happen is they'd bo buy these credit
cards somewhere, put money in the bank and run all these one-after-another
charges to lower their chargeback rate?"
A. Absolutely.
Q. Did you ever talk to Workman or Bennett about this?
A. I sure did. I would be the one that would be asked to go out
to dinner with them, feel them out, talk to them about that stuff,
and whenever I brought up the issue, they always backed off.
The issue of Alpha Soft, banging credit cards lowering chargebacks.
John Bennett never spoke to me specifically about that, but then
in several conversations that I had impromptu with Steve Workman,
he alwas pointed the finger at Alpha Soft. And then I would retort
with, 'Well, how come your accounts are benefitting from it if
Alpha Soft is the only one doing it?' And he'd back off.