Cisco, Ex-Customers Engage In Dispute Full of Seamy Details
By GLENN R. SIMPSON
Staff Reporter of THE WALL STREET JOURNAL
Cisco Systems Inc., a leader in the Internet economy, is embroiled in a dispute with two former customers who accuse Cisco salesmen of extortion, conflicts of interest and making death threats.
The customers' allegations have arisen in a legal tangle between Cisco and two small technology companies, one based in Florida and the other in Louisiana.
A Cisco lawyer met early this year with a Federal Bureau of Investigation agent investigating the allegations, but the company, which launched an internal inquiry, doesn't appear to be a target of the probe. Two sales agents accused of receiving improper "commissions" from a Cisco customer have left the company, while another has been suspended and a fourth has been transferred.
Read the text of the Cisco Systems lawsuit against Worldwide Web Systems and American MetroComm
Company profile: Cisco Systems
Two law-enforcement officials confirmed the case, which is being overseen by the U.S. Attorney for the Southern District of Florida. Cisco officials gave detailed accounts of the affair, saying they were eager to put it behind them.
Cisco's chief financial officer, Larry Carter, called the matter "a very serious problem," but said it was "an isolated incident." The company, he said, "has a zero tolerance for abuse of trust or unethical actions." Cisco recently restricted employees from investing in companies that could raise potential conflicts.
Cisco officials said most of the problems involve the two salesmen who have left the company. An employee who was transferred was accused by a customer of making an improper investment in the customer's company but was cleared by Cisco of impropriety. The suspended employee allegedly received $350,000 from a customer, but later returned the money.
'Distributions' From Software Firm
A pair of companies set up by the two former Cisco salesmen, Kevin Bennett of Cleveland and Vincent Rotondo of Palm Beach, Fla., allegedly received $2.5 million each last year in "distributions" from Miami software firm Worldwide Web Systems Inc., according to a suit filed in U.S. District Court for the Southern District of Florida. The payments were made to Bullco Ventures Inc. of Alpharetta, Ga., and American Peripherals Inc. of Cleveland, each of which held a 20% stake in Worldwide Web Systems.
Cisco alleges in court documents that the funds are related to a large sale of Cisco equipment to a third company, American MetroComm Inc. of New Orleans. The $50 million-plus sale was arranged in part by Mr. Bennett and Mr. Rotondo, and was financed with loans from Cisco Capital, a unit of Cisco.
American MetroComm was the largest client of Worldwide Web Systems, which designed software for controlling Cisco telecommunications equipment. According to Cisco officials, every time Cisco Capital made a large loan to American MetroComm, "within one or two days," Worldwide Web Systems made a large "distribution" to Mr. Bennett, Mr. Rotondo and other shareholders.
Alleged Murder Threat
In late 1999, Worldwide owner Frank Valdez sought to end the arrangement with Messrs. Bennett and Rotondo. In a lawsuit filed last December, Mr. Valdez accused the two men of extorting $5 million in payments from his company with threats of violence. Mr. Valdez claims in court documents that Mr. Rotondo on multiple occasions threatened him and his family members "with physical violence," and once "threatened to murder and/or have a third party murder" Mr. Valdez.
"Kevin Bennett categorically denies [those] baseless allegations," said Mr. Bennett's attorney, Shawn Organ. "Simply stated, it did not happen." Through his attorney, Mr. Rotondo also denied allegations of extortion. "All of these payments were made 100% voluntarily -- indeed, in exchange for valuable services," said the lawyer, Joseph Rebak. As for Mr. Rotondo's investment in Worldwide, Mr. Rebak said, "Vince can only say his superiors at Cisco encouraged him to invest in these types of companies."
Cisco filed suit Thursday in federal court in San Jose, Calif., against Worldwide Web and MetroComm, seeking repayment of the loans. The company also filed arbitration claims against Mr. Rotondo and Mr. Bennett, saying the payments "were unlawful and were procured" improperly.
"We're not going to pay them anything," said Mike Henry, chief executive officer of MetroComm. "Their products don't work," he added. Cisco blames software problems.
Other Cisco Employees
Mr. Henry also said financial conflicts among Cisco's sales force are widespread. He named Deborah Traficante, a Cisco vice president who supervised Mr. Bennett and Mr. Rotondo, and who is the employee who was transferred, saying he allowed her to invest at a cut rate in a telecommunications company he formerly ran called MegsINet Inc. A lawyer for Ms. Traficante, Gerald Feffer, said that his client wasn't available, and that he didn't know enough about the matter to respond immediately. Cisco said the investment was cleared in advance.
According to Mr. Valdez's lawyer, Joel Hirschhorn, Worldwide sent checks totaling $350,000 to another Cisco employee, Susan Lin Lange, the employee who is suspended. "The money never went to her," said her attorney, Pat McMahon. "It's my understanding the money was paid to a corporation owned by Ms. Lange's husband, for the purpose of doing Y2K educational programs." Mr. McMahon said that Mr. Lange has returned the money.
Mr. Hirschhorn said Mr. Valdez welcomed the suit as an opportunity "to explore Cisco's flagrant violation of their own policy, which prohibits Cisco employees from shaking down customers." He said Cisco stills owes money to Mr. Valdez.
The credibility of Mr. Valdez has been questioned in court documents, which allege that he too received more than $2 million in Cisco loan money as a "distribution" from Worldwide, and improperly depleted corporate assets. "Every penny has been accounted for," Mr. Hirschhorn responded.
Write to Glenn R. Simpson at glenn.simpson@wsj.com |
