WWWC has also been used to create "sattelite" scams involving the defendants. For example, in March 1996, the defendants caused WWWC to license its casino gaming software to CAMELOT in exchange for the payment of $10 million, with $1.5 million to be paid within 90 days and $8.5 million to be paid over the next three (3) years. On the strength of the foregoing license, CAMELOT raised nearly $5 million from investors and then used WWWC's software to attract registered players at the rate of 5,000-7,000 gamblers per month, creating substantial income for certain of the Individual Defendants. In April 1997, after paying only about $2 million under the foregoing agreement, CAMELOT was merged into WWWC, presumably extinguishing the software license "liability" and the prospect of any additional "deferred" revenue for WWWC.
Not only have the defendants misappropriated the corporate funds from WWWC, but they have also completely failed to exercise the reasonable and ordinary care which they owed and owe to palintiffs and the members of Class. For example, while squandering the proceeds of funds raised from WWWC investors, the defendants have allowed WWWC's accounts payable to grow to more than $2 million, including unpaid federal payroll taxes of nearly $1 million. Commencing in the fall of 1997, the defendants also stopped paying most of WWWC's employees, resulting in rulings by the California Labor Commissioner awarding hundreds of thousands of dollars against the company for non-payment of wages, penalties and interest. In addition, the defendants have failed to pay a great many of WWWC's vendors for software and related products and services, creating substantial liability and threatenaing the very existance of WWWC.
During the relevant time period, WWWC was caused to waste substantial corporate resoursces on certain boxing promotions for the benefit of PJ PROMOTIONS, a company controlled by defendant MICHAELS. These activities were clearly outside the scope of WWWC's business plan, and only served to aggrandize defendant MICHAELS' ego.
WWWC also wasted nearly $1 million of the proceeds raised from investors on "expanding and improving" the St. James Casino, located in Antigua on facilities leased from the St. James Club Hotel. The spending on this project was recklessly extravagant, in part becuase defendant MICHAELS insited that all of the work crews, materials and equipment be exported from Orange County to Antigua. The investment in the Antigua casino was unwarranted by the meager daily revenu it was able to bring in, and the only business justification for the investment was that the St. James Casino would have made WWWC the only on-line casino with an actual "land" casinoas well. In late 1997, however, WWWC failed to make its monthly rent payments and the lease to the St. James Casino was lost -- along with all of WWWC's improvements.
WWWC also spent substantial sums of money to acquire Red Dot Foods, Inc. ("Red Dot") -- a potato chip company unrelated to WWWC's business plan. Eventually, it was determined that Red Dot was essentially worthless, and the investment was, in effect, abandoned.
As a result of the defendants' wrongful conduct, by the time WWWC went "on-line" in February 1998, it had virtually no funds with which to promote its web site and/or carry out its business plan. Substantially all of the monies raised from investors have been misappropriated and/or dissipated by the defendants. WWWC's current cash position is so dire that the company's telephones were disconnected (for non-payment) for several days in April 1998, and the company's web site was shut down for several days for failure to pay WWWC's server. The defendants have also failed to pay South African vendor for $65,000 in hardware, and that vendor is threatenain to take back its equipment and bring the web site off-line. There are also strong indications that some of the "winners" playing WWWC's internet casino games are not being paid on a consistent basis.
Remarkably, for the quarter ended March 31, 1998, WWWC showed no income whatsoever, along with expenses of $52,831.73. Only a handful of employees are still working at the corporate offices of WWWC, although there are 4-5 persons in a "boiler room" at the back of the offices selling "lottery tickets" for WWEL, dba as the "international Lotto Club." WWEL was supposed to be an on-line pool through which persons could buy a stake in a large number of lottery tickets. Instead of being used in that fashion, the funds that were drawn from clients' credit cards were used to fund WWWC's payroll on a number of occasions.
The defendants' misconduct and mismanagement have caused plaintiffs and the other members of the Class irrparable injury. Despite having raised ample resources from investors, it took WWWC until February 1998 -- more than two and one -half years -- to get "on line" with an internet casino. had WWWC gone on-line immediately, it would have faced virtually no competition. Now, there are more than 130 casinos on-line.
Throughout the Class Period, the true facts about WWWC were concealed from plaintiffs and other members of the Class. For example it was never disclosed that one of the principal reasons WWWC did not go on-line sooner is that MICHAELS insisted the company go "public" before going on-line. In fact, MICHAELS wanted to "cash out" a substantial portion of his stake in the company (held through ATLANTIC PACIFIC) before ever going on-line, believing that it was easier to sell the "sizzle" of a planned casino than an actual operating company with measurable performance and results.
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