As first reported by Behind MLM WakeupNow management has filled a $70 Million lawsuit against former CEO Kirby Cochran.
The lawsuit gives a detailed Behind the curtains insight what happened and how mis-management lead to the fall of WakeUpNow, leaving ten-thousands of hard working distributors in the dust.
According to WakeUpNow:
Kirby Cochran’s gross mismanagement, side-deals with family members to pay out all of WUN’s profits, lavish expenditures, failed business initiatives, and the botched HUB launch placed WUN in a position where it needed millions of dollars to survive.
The full lawsuit can be downloaded here WUN Law Suit.
From the lawsuit I have taken out 2 interesting allegations:
In December 2010, Kirby Cochran, who previously had no involvement with Wake Up Now, learned through his brother Gary C. that the management of Wake Up Now was interested in going public.
Kirby Cochran, acting as a middle-man, orchestrated a going public shell merger wherein Wake Up Now, an operating Utah corporation, was acquired as a subsidiary by a Delaware publicly traded corporation, trading/ticker symbol “WORC”.
In connection with the merger, the Delaware publicly traded shell corporation parent changed its name to Wake Up Now, but kept its trading/ticker symbol WORC.
Wake Up Now later discovered that, near the time of the transaction, Kirby Cochran’s brother and co-defendant Gary C. secretly purchased a large percentage of WORC’s public float.
Wake Up Now has also recently discovered that, at the time of the transaction, Kirby Cochran, who was not a licensed broker, was negotiating both sides of the deal.
He induced the public shell company to issue significant shares of stock to Wake Up Now founder Troy Muhlestein to close the acquisition, but then surreptitiously induced Muhlestein to deliver to Kirby Cochran’s possession, medallion guaranteed stock certificates evidencing at least 6,412,500 of those shares, which Kirby Cochran promised to hold for Richard Smith and others
As CEO, Kirby Cochran caused excessive personal and corporate expenditures despite the Corporation’s relative cash positions, engaged in side-dealings with employees and affiliates, engaged in undisclosed and/or veiled agreements with family members, including Gary C., failed to adequately plan to avoid repeated financial emergencies, nearly unilaterally caused multiple severe business disruptions and costs due to his personal insistence on internally developing software to perform critical business processes despite the existence of cost-effective off-the-shelf alternatives, distraction from personal judgments and other legal issues due to past business dealings, and negatively affecting corporate morale by installing surveillance cameras throughout employee work areas, and creepily commenting to attractive young women that he was watching over them.
Moreover, members of WUN’s board and certain large investors had discovered that Kirby Cochran manufactured personal credibility by dishonestly taking credit for the success of a company called Headwaters, Inc. (formerly known as Covol, Inc.).
In reality, Kirby Cochran was president of Covol for 9 months in 1995-96. During the time that he was President at Covol, its gross revenues were only a few hundred thousand dollars with millions of dollars of investor funded losses.
Facing millions in losses, Kirby Cochran quit in 1996 citing health issues.
Despite Kirby Cochran’s representations, when he left Covol, its stock price (if adjusted for stock splits) differed little from the stock price at the time he started (despite a brief $250 million market capitalization spike during his brief tenure).
After Kirby Cochran’s departure, Covol changed its management, significantly changed its business, raised new money, and changed its name to Headwaters and most significantly, hired Kirk A. Benson, as chief executive officer & chairman of the Board who continues to serve in that capacity today.
Many years after Kirby Cochran’s departure, and under Mr. Benson and his team’s leadership, Headwaters started to gross millions of dollars in sales, showed its first profit, and became publicly listed on the NASDAQ.
Despite having little or nothing to do with its success, as Headwaters reached a billion dollar market cap in 2004 (8 years after his departure), Kirby Cochran started to falsely claim that it was he that built Headwaters into a billion dollar company.
Moreover, WUN’s largest investor, which by September 2014 had invested approximately $3 million in order to meet a series of cash shortfalls WUN faced from time to time due to Kirby Cochran’s rampant and reckless spending, lost faith in Kirby Cochran’s honesty due to his falsely claiming that he had personally invested over $1.5 million in WUN when in reality, he had no, or negligible, investment in WUN.
Kirby Cochran also wasted approximately $2 million dollars by purchasing and attempting to reboot the Southeast Asian operations of Veyea, Inc., a failed MLM started by James Watson, a former HR director of Utah based MLM Neways.
Together with Mr. Watson, Kirby Cochran and his son collectively spent months in Malaysia, Thailand and Vietnam without evidence of any work being accomplished.
Kirby Cochran even caused WUN to hire private, personal security to stop IBOs from being able to interact with him.
Most significantly, Kirby Cochran’s desire to control all aspects of WUN’s business resulted in WUN irrationally shunning third-party “commission engine” software used by substantially all direct sales companies with a multi-level compensation structure.
Kirby Cochran created a false narrative that third-party commission engine software, despite being used by substantially all of WUN’s competitors, was prohibitively expensive and problematic.
Those WUN employees and consultants with technical backgrounds who objected to WUN creating its own commission engine were marginalized and often terminated.
Kirby Cochran requested that his long-time acquaintance, Ben Anderson, who is a trained and experienced computer scientist and former Senior Vice President of Novell, Inc. from 1998-2002, advise Wake Up Now in building its own software platform and commission engine (referred to by WUN as the “HUB”) which would integrate all IBO sign-ups, facilitate marketing, customer sales, charge customer credit cards, facilitate credit card refunds, calculate and deliver sales commissions, and other functionality fundamentally essential and at the core of WUN’s business.
Unsurprisingly, Mr. Anderson spoke in terms of years of development and beta testing and millions of dollars of development costs. Kirby Cochran never again invited Mr. Anderson back to WUN.
Kirby Cochran instead turned to a couple of ambitious young developers to “complete” the development of the HUB.
Chad Jardine, WUN’s head of marketing at the time, who was closely aligned with the needs and interests of both WUN’s customers and IBOs and had enough technical knowledge to digest the “progress” of Kirby Cochran’s chosen developers, vehemently objected to the quick creation of a new HUB.
Mr. Jardine was quickly marginalized and eventually fired by Kirby Cochran.
Over the objection of a number of advisors and management team members who were powerless to stop it, Kirby Cochran and his young developers launched the new HUB in October 2013, just 3 months after Ben Anderson had assessed the need for years of development.
Mr. Anderson was right. Kirby Cochran caused the HUB to be launched without sufficient development and with no beta testing.
The HUB was virtually non-functional at the time of launch.
Astonishingly, Kirby Cochran’s hand-picked development team had somehow destroyed the former functional HUB system in the process of launching the new HUB. There was no going back.
The result of the HUB debacle was disastrous. WUN became nearly totally blind to its business functions.
It was unable to confirm delivery of its product, unable to determine whether products were paid for. WUN’s call center had wait times for over 4 hours with disgruntled customers and IBOs who were unable to purchase product, unable to log-in to receive product, and IBOs unable to view their accrued commissions.
WUN, which already had an extremely liberal refund policy, commenced honoring substantially every refund request, even where products had been used and commissions paid.
Many customers, understandably enraged by multi-hour call center wait times, simply charged-back their purchases.
Despite what by necessity became a nearly no-questions-asked-refund policy, hundreds of people inquired with, or made actual complaints to, governmental agencies, including the U.S. Federal Trade Commission (“FTC”), and the Better Business Bureau.
Competitors pounced causing great damage to WUN’s business and reputation.
WUN was forced to spend significant money to increase its customer support staff and even hired a third party call center, which spoke for WUN, but lacked the training and skill of most of WUN’s in-house customer support agents.