Cybersocket has sued Internet Billing Company (iBill) in two separate small claims court actions, alleging the troubled payment processor has failed to pay for two month’s worth of advertising with the gay and lesbian information publication. Cybersocket said the actions were a last resort following unsuccessful attempts at dialogue between the companies.
“This is the beginning, the first step of what we're going to do with them,” Cybersocket president Morgan Sommer told AVNOnline.com. “iBill had been a significant relationship for seven years; we were one of their first clients and we've been with them ever since. Over the last year or so the relationships have shifted.”
Sommer said – in a theme being sounded increasingly around the Adult Internet – that Cybersocket experienced promises made and broken “repeatedly” by iBill. He said Cybersocket filed the actions in Los Angeles small claims court because the advertising contracts in question have California jurisdiction.
“They were our back cover advertisers for five years,” Sommer said. “It's unfortunate that iBill chose to stop paying us along with everybody else in the industry. And we don't see any resolution through dialogue or any other form of communication. We have chosen this as a last resort.”
Key personnel at iBill were unavailable for comment before this story was posted, but other Adult Internet sources who spoke on condition of anonymity said iBill’s situation has become somewhat more troubled in recent months.
Some of those sources said iBill has severed its relationship with Creaxion, an Atlanta-based advertising agency whom iBill engaged to help it handle public relations and advertising during and immediately following the company’s crisis with their former bank, First Data.
Creaxion chief executive Mark Pettit was unavailable for comment.
“We have been unable to rely on the word of any person that works at iBill,” Sommer said. “And our last resort is always legal action, but we feel we have no other choice because every other form of communication and negotiation has yielded nothing.”
Sommer said Cybersocket doesn’t exactly expect to see any actual financial remuneration from the small claims action, even though “it’s a significant amount of revenue we have lost while providing expensive services” to iBill.
“There have been so many promises of payment and promises not kept,” he said, repeating an earlier theme. “We've essentially resigned ourselves to the fact that we will not receive compensation. If we expected money, we'd have filed a civil suit and hammered away.
“We want to get it on record that they're in breach of contract,” he continued. “If and when this company is solvent, maybe their management will choose to honor its debts. If this company is liquidated, maybe we'll get a percentage of what is owed to us. It's important that we make the token gesture of filing a suit per the contract that was signed between our two companies.”
Despite iBill's troubles, Interactive Brand Development, based like iBill in Deerfield Beach, Florida, has completed the acquisition of the troubled processor from PHSL, the parent of Penthouse – going through with a deal they first planned to terminate in the wake of iBill’s problems with First Data. One investment analyst said those problems “seemed to be a big red flag,” but the company changed its plans in late January and finished the deal, even though it might violate American Stock Exchange listing requirements. AMEX is reportedly still threatening to de-list IBD.
According to one published report, iBill has a new deal with Visa to handle transactions, which IBD reportedly said was a major factor in their decision to go ahead and finalize the purchase from PHSL. To do the deal, IBD issued 330,000 shares of convertible preferred IBD stock to PHSL, shares with a liquidation preference of $100 a share – $33 million.
"We are very happy to have concluded a transaction we have been working on for several months," PHSL executive vice president Claude Bertin said in a statement announcing the close of the deal. "PHSL shareholders will economically participate in the future of iBill and Penthouse Media Group through IBD's ownership in the two companies."
Whether that begins a revival of iBill or its reputation, which was once one of the strongest in the Adult Internet, remains to be seen. For Sommer, the iBill situation has particularly powerful implications, considering he and his operation had been one of iBill’s strongest allies.
“They're taking services from companies and not paying for them. They're taking our customers' money and not giving us the money for the service we provided. I feel somewhat responsible because for years I was one of the biggest supporters and promoters of iBill,” Sommer said. “My partner and I feel we both stood by iBill faithfully, as you should with a friend and an ally, and at first we didn't really want to believe we were being mistreated by a company we had had such close ties to. But the reality is that the people we built the relationship eight or nine years ago are not the people that are running the company today. When the management changes, the company changes.”
According to a widely circulated Internet article – listed as being by a staffer for the Oregon Herald who is also rumored to be an Adult Internet industry insider – several major iBill personnel have “either left iBill (or) are in hiding,” while senior vice president Cathy Beardsley, a longtime spokesperson for the company in public matters, had been “bumped up” to the presidency of the company. Beardsley was unavailable for comment at this writing, and it could not be confirmed just who among the names mentioned as leaving or hiding may have actually done so.
Beardsley was named directly in the Cybersocket small claims actions “because we have a personal guarantee clause in our contract, and she was the person we felt was the acting representative of the company,” Sommer said.
“The damage to us is minor compared to some of our customers and colleagues. But the dollar figure sounds small but has had a major impact on us,” he continued. “Cybersocket partners have agreed to cancel iBill. We simply refuse to allow iBill to continue taking our money. They've been financing themselves off our customers' money with no compensation for four months now. I'd rather see the members cancelled and the database disappear than allow iBill to continue to live off stolen funds.”
Another Adult Internet player, Bedfellow.com’s Karl Edwards, would say only that iBill “owes us a shitload of money and they’re not paying us,” but chose not to say anything further for the record at this time.
Others in the industry think that even with IBD completing the buy, iBill’s survival and revival is anything but assured.
“They best [iBill] could do at this point,” said one industry player on condition of anonymity, “is to turn over their accounts to another processor. The problem is that, if they have [merchant account] problems that have resulted with deal breaks with banks, their clients are the problem, so no other processor would take them on without doing a full re-screen. Which would mean another $700 from Webmasters just to get back in business. It’s a bad deal all the way around.”
This individual said that iBill could also be an example of why some think the worst thing for a billing company is to become too successful, as iBill surely was at one time. “Controlled growth, managed risks, and internal checks and balancers are required,” the player continued. “This includes spreading transactions across a number of accounts and banking relationships, integrating less high-risk accounts, limiting affiliate program rebilling abilities. There’s a lot they could have done but either didn’t do or no one was paying attention. It's a system designed to collapse so that it is impossible to get too big to be a serious competitor.”
