More Axium Bankruptcy Fallout
Jan 18th, 2008 by John Stodder
A week has passed since we posted this item about Axium International, a payroll firm that suddenly closed its doors and went bankrupt. Since then, the firm’s primary financier has sued two principles, John Visconti and Ronald Garber, and has made a number of stunning allegations. Many details are at the gossip blog Defamer, and on a blog run by Filmmaker.
The facts alleged in the suit tell a story of a long, systematic con, and suggest the bankruptcy only happened because the IRS wouldn’t give Visconti and Garber personal immunity from the firm’s liabilities, even though the liabilities were caused by an unbelievable, sustained spending spree from which only they and their wives and lovers benefited, much of it using money the firm had freshly borrowed.
This is a case involving, among other things, massive fraud, theft, self-dealing and the looting of assets of the now-bankrupt Axium International, Inc., one of the entertainment industry’s leading payroll services firms, and all of the subsidiaries of Axium Holdings, Inc. (collectively, “Axium”). Defendants John Visconti and Garber, in connection with and through their investment vehicles, UAF and JVE, and their respective wives or ex-wives, Defendants Maya Visconti and Susan Cruz, and their servant, agent or employee, Christy Futak, perpetrated a multi-year scheme to create fictitious profit by filing false returns that understated Axium’s employment tax liabilities by tens (and perhaps hundreds) of millions of dollars, and by diverting untold millions of dollars in cash and other assets from Axium to secret bank accounts and otherwise to their own personal uses. Defendants further used Axium’s concocted and false financial condition to induce Golden Tree and certain other lenders to extend $130 million in financing between 2004 and 2007, which loans were secured by substantially all of Axium’s assets. Then, in violation of numerous loan covenants, Defendants diverted those assets out of Axium, using Axium as their own personal piggy bank to finance their extravagant lifestyles. While Defendants John Visconti and Garber in particular gorged themselves on the fruits of deception and fraud, Axium, its clients and roughly 550 employees suffered, ultimately, with the loss of their jobs. When the IRS recently began to unearth Defendant’s fraudulent scheme, Defendants John Visconti and Garber directed Axium to pay to the IRS tens of millions of dollars in previously undisclosed past-due tax liabilities and unnecessary interest and penalties, in the hopes of preventing the IRS from asserting personal liability against them. Defendants’ pattern of fraud, theft and gross mismanagement and waste resulted in each of 40 Axium entities seeking bankruptcy protection on January 8, 2008, by the filing of Chapter 7 petitions in the United States Bankruptcy Court for the Central District of California.
A soft-core porn actress, Amber Smith, was furnished with an apartment, a car and large payments under the guise of being a “consultant” to the payroll management firm, the suit alleges. Garber and Visconti both were divorced, and the company paid all the bills for the divorce proceedings, and at least one ex-wife was given a company-financed Bentley as part of her divorce settlement.
Acting as they were, as corporate officers, is it possible Visconti and Garber could get away with this? They appear to have moved all liabilities to the company, to be sorted out in bankruptcy court.
Meanwhile, stories are starting to trickle in about some of the victims of this scheme, the contractors and vendors whose checks were issued by Axium, based on deposits from the firms they worked for. That money’s gone. The victims are not necessarily people who worked in the entertainment field. A Minnesota Star-Tribune story refers to Northwest Airlines and UnitedHealth, which have employees who are missing up to two months’ pay.
It was the companies that chose to do business with Axium (or a subsidiary), for their convenience. The employees weren’t aware they had a choice in the matter. Nevertheless, according to the Strib, UnitedHealth has only offered partial settlements, and only to some of the 3,000 affected employees. Northwest has been silent as to its plans.
Can solvent companies of this size seriously think they can get away with hiring people, assigning them work and then not paying them? This isn’t like the situation where a prime contractor absconds with funds owed to subcontractors. In such a case, the subcontractors can only sue the prime contractor, not the client. Here, the employees were never on the Axium payroll. Axium was acting at the behest of its clients, companies like Northwest and UnitedHealth.
If the companies hold to their positions, and if other companies hit by Axium’s misdeeds follow suit, does that mean independent contractors should in the future demand the right to be paid with company checks? If the workers had known they were incurring a risk by accepting checks from a payroll vendor, they might have said, “No thanks, you can pay me directly.” I wonder if this issue is addressed in the small print.
Further, I wonder if Axium’s clients can be seen as responsible for due diligence in overseeing the financial viability of their payroll vendor? Did Northwest or UnitedHealth ever audit Axium? Did they have the right to perform an audit? Companies using other payroll management vendors are probably flyspecking their agreements right about now.
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