MOD executives Phillips, Gordon on leave
Kiosk company's countersuit against Lieberfarb dismissed
By Jennifer Netherby -- Video Business, 4/13/2009
APRIL 13 | Embattled digital kiosk company MOD Systems has placed CEO Mark Phillips and chief operating officer Kenneth Gordon on administrative leave following charges of fraud leveled by an angel investor, Seattle’s TechFlash reports. MOD co-founder Anthony Bay has reportedly been named interim CEO.
Bay and other MOD execs didn’t immediately return e-mails or calls for comment.
Phillips and Gordon were reportedly placed on leave a week ago, a month after angel investor Robert Arnold sued the company for massive fraud and embezzlement. Bay also is named in the suit, though not tied to the alleged fraud.
Arnold, who owned a 7.8% stake in the company at one point, charged that Phillips had set up a sham consulting company that received $15,000 to $25,000 a month from MOD. Those funds were transferred from the consulting firm to an account in the Netherlands controlled by Phillips, the suit alleges. It also claims Phillips was using MOD funds for his rent, car and travel expenses.
After the lawsuit was filed, MOD chief financial officer Rich Barber issued a statement saying that MOD had set up an internal committee of its board of directors to investigate the claims. Barber couldn’t be reached for further comment Monday; an e-mail said he was out of the office.
A source close to the company told VB that the committee had completed its investigation several weeks ago and found evidence backing Arnold’s claims.
The turmoil comes as MOD prepares to launch digital kiosks at retail with tech partners Toshiba Corp. and NCR Corp. Toshiba and NCR invested $35 million in MOD last fall to develop kiosks for retail that offer movie and music downloads to SD memory cards. MOD has content deals with Warner Bros. and Paramount Digital Entertainment. In early March, MOD, Toshiba and NCR showed off their kiosks at the Japanese retail show RetailTech.
NCR and Toshiba have not commented on MOD’s legal trouble. A spokesman for NCR declined to comment on the executive shuffle or NCR’s partnership with MOD Monday. Toshiba executives in Japan couldn’t immediately be reached.
Arnold’s lawsuit also alleges that the partnership with Toshiba and NCR gave those companies and Deluxe Entertainment Services a controlling interest in MOD without disclosing terms to him, a major shareholder. He also claims that the deal gives Toshiba the right to MOD’s intellectual property so it could compete against MOD.
Toshiba Corp. spokesperson Yuko Sugahara told VB in late February that the company has “no plan or intent to compete against MOD” in the kiosk downloading space.
Meanwhile, MOD lost a round earlier this month in its unrelated lawsuit with former Warner Home Video chief Warren Lieberfarb, who is suing the company for more than $1 million in unpaid consulting fees. A district court judge dismissed the countersuit MOD filed in January against Lieberfarb on technical grounds. MOD had countersued under Washington State’s Consumer Protection Act, claiming Lieberfarb had misrepresented himself as an industry expert and plotted to take over the company or form a competing company.
U.S. District Court judge John Coughenour dismissed MOD’s suit April 2, writing that MOD “has not pleaded sufficient facts to link Plaintiff’s alleged acts to a public interest impact.”
Paul Sweeting contributed
