Pixelon Decimates Its Ranks

May 11 2000

Pixelon, the Web-streaming startup whose founder spent more than $12 million on a launch party before revealing that he was a fugitive from the law, has laid off all of its remaining employees and is now struggling to reorganize itself, a company official said.

The startup, based in San Juan Capistrano, Calif., had not paid employees for about two weeks, according to sources. On Thursday, it laid off about 55 employees, said Pixelon VP of product development Russell Reeder. About six managers remain but they are working without salary, he added. "Management is still coming in and still working on bringing in an investor to give us money that can tide us over," Reeder explained. Pixelon is trying to buy time so that it can file for Chapter 11 bankruptcy to settle numerous debts that it has racked up during the past year.

The company has been in financial turmoil for some time. Earlier this year, Pixelon tried to complete a second private placement that would have brought in more than $25 million, according to people at Pixelon and Advanced Equities, the Chicago brokerage that funded Pixelon with about $28 million in a previous round. The deal fell apart amid disagreements between the brokerage and Pixelon's management. Pixelon was in the process of talking to new investors when news surfaced that its founder was a convicted embezzler and one of the most wanted fugitives in the state of Virginia. The news scared away many of the remaining potential investors.

In mid-April, Michael Fenne, who served as Pixelon's chairman, as well as CEO and CTO at different times, revealed that his real name was David Kim Stanley, who in 1996 fled an eight-year sentence handed down in Virginia state court and assumed a new identity in California. In 1989, Stanley pleaded guilty to 51 counts of fraud-related charges. Many of Stanley's victims were elderly people living in Virginia and Tennessee. A number of them were parishioners of the church in Wise, Va., where Stanley's father preached.

Pixelon creditors recently filed a petition in court that would require the struggling company to file for bankruptcy. "The plan is to be able to file a Chapter 11 [bankruptcy petition] that will be acceptable to the court that will be able to bring the company back and re-establish business," Reeder said.

Unlike the woes at other dot-coms caused by the recent market correction, Pixelon's troubles seemed to start almost as soon as the company launched. In late October 1999, Pixelon spent more than $12 million on a concert that featured a historic reunion of rock legends the Who, in addition to performances by the Dixie Chicks, Chely Wright, Faith Hill and LeAnn Rimes. Pixelon justified the extravagance at the time by promising that the event would allow it to show off its ability to broadcast high-quality live video over the Net and to acquire video archives that would not be available anywhere else. The company was wrong on both accounts: Except for a handful of viewers, most people found it impossible to use the Pixelon player to watch the show over the Net; and the vast majority of the content never made its way onto the company's Web site.

Thursday's layoffs are only the latest cuts for Pixelon. Late last year, the company fired a large portion of its staff after founder Fenne resigned and the company decided to scale back its business. After Pixelon abandoned its plans to be a Net-based broadcaster in favor of helping businesses distribute video online, the company no longer needed the scores of people it had hired to produce entertainment and other types of content. Several employees have sued Pixelon, claiming that the company breached employment contracts. Pixelon has said the suits, most of which are still pending, are without merit.