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'A HIGH FLYER AND VERY SMART MAN'
According to the people who knew him, Watson was driven by a desire to be wealthy and powerful. James Cameron, a prosecutor for the Attorney General's Office in Maine, grew up with Watson in the blue-collar town of Belding, Mich., and recalls how his former friend worshiped wealth.
"He was attracted to wealth like a moth to a flame," says Cameron, who is currently writing a book on CyberNet and its late chief executive. "He knew from the very beginning that he wanted to be an entrepreneur."
Early on, it appeared he would achieve that goal, as Watson's life was marked by enormous potential. A straight-A student, Watson was extremely intelligent and reportedly scored above 150 on an I.Q. test. He eventually graduated as valedictorian of Belding High School. He also stood out. Sources familiar with his childhood say Watson, the son of a liquor storeowner, would attend classes in grade school dressed in a suit and carrying a briefcase, only to be ridiculed by classmates. Later, he would claim he earned an M.B.A. from Stanford University and attended a prep school far away from his modest hometown.
"He always pretended he came from money and was a big player," says Ellie Wood, a former CyberNet employee. "He called himself Barton Watson III, even though there was no I or II in his family."
An FBI affidavit for a seizure warrant obtained by VARBusiness sheds some light on the shady past of CyberNet's late chief executive. According to the documents, the FBI first investigated Watson in 1986 as the subject of a fraud probe. During his career as a stockbroker with E.F. Hutton in Washington, D.C., in the 1980s, Watson convinced an investor to put money into a company called Interstate Consolidated Investments (ICI). The unnamed investor cut a check for $10,000 payable to ICI, but the funds were never invested in the company. Why? ICI did not exist. Authorities discovered Watson himself was listed as the president of ICI, and his mother, Geraldine Watson, as vice president. The company's address wasn't located within a capital office building or business park but in Watson's apartment.
In 1987, Watson pled guilty to mail fraud after investigators determined he had swindled the unnamed investor as well as others and used the money for his personal expenses. He was sentenced to three years in prison, serving just under 24 months at Allenwood Federal Prison in Pennsylvania before being paroled, and fined $230,000. During the course of the investigation, the FBI interviewed Dan Roland, a co-worker at E.F. Hutton, who described Watson as "a high flyer" and "a very smart man."
John Straayer, co-founder of the company that would become The CyberNet Group, says he had no idea about Watson's troubles when he met him just a short time after he was released from prison. "He was very intelligent," Straayer says, "and we were young and ambitious." Straayer decided to start a business with his acquaintance in 1989 called WS Services: Watson-Straayer Services.
The union, however, didn't last long. Later, Watson changed the company name to CyberNet Engineering, but put all records of ownership in his wife's name. "That was the first red flag," Straayer says. "I found out later that he put everything in Krista's name because he had a criminal record." Straayer left CyberNet in 1992 after suspecting Barton Watson of embezzling company funds and falsifying company records. He told authorities that his former business partner was involved in criminal business practices, but the investigation never came to fruition. Says Straayer: "I always felt that if the authorities pressed a little harder back then, then none of this would have happened."
'IT'S ALL ABOUT IMAGE'
After Straayer left the company, CyberNet became Watson's kingdom. He turned the company's headquarters into his own lavish palace with expensive office furnishings and fine wood floors. Watson had a fascination with Chinese and Japanese culture and decorated his office with Asian art. He also had a passion for expensive cars and wine; he built the wine cellar in the building's basement and purchased luxury automobiles, like a rare 1980 Rolls Royce. "It's all about image. Barton was obsessed with maintaining the façade with all of the opulence," McTaggart says.
Perhaps most of all, Watson enjoyed intimidating his people and making them jump at his beck and call. Numerous former employees of the company describe Watson--an imposing, heavyset figure, standing over 6 feet tall--as an abusive and bullying dictator who created an atmosphere of fear, uncertainty and doubt inside the company starting in the mid-1990s. Internal e-mails obtained by VARBusiness show that Watson, his wife and Horton routinely derided employees in companywide memos, calling some workers "pathetic" and "dead wood," along with other personal attacks.
Ellie Wood only worked at the solution provider for about a year-and-a-half, leaving in early 1997. Wood, who served as an assistant to Barton and Krista Watson, says Barton would demand that his favorite imported iced tea be served to him at very specific times throughout the day, for example, and that his Whopper from Burger King be served on the fine china in his luxurious office. One of Wood's first tasks after being hired was to find a good deal on a new BMW for the Watsons. "It didn't take long to see the writing on the wall," she says. "There was a lot of immoral activity there."
The mid-'90s was also when Watson began building his web of deceit. The FBI affidavit sheds some light on CyberNet's activities during the past decade. It is difficult to determine when and how Watson began to defraud numerous banks and lenders and deceive business partners and customers. A number of ex-employees who were interviewed by VARBusiness for this article have a plethora of stories regarding the various schemes Watson committed over the years. But for many, the pivotal moment came one day in 1996 when several staff members saw something peculiar: A group of temp workers were peeling stickers from dozens of boxes of computers using hair dryers and putty knives.
Former CyberNet Group employee John Westra, who only spent about six months at the company, discovered the stickers were tags identifying the inventory as remanufactured products, and found out that the company was passing the computers off as new. "Once I saw the stickers being removed by temp workers, it was time to get out," Westra says.
This incident triggered the FBI to take a closer look at the company. In 2000, the FBI began an investigation into Watson's company after a legal dispute between CyberNet and a local school district came to the FBI's attention. Hastings Public Schools in Michigan had accused CyberNet of fraud regarding an order in 1996 for 131 new Compaq Presario desktops from the solution provider, an order totaling more than $230,000. After receiving and paying for the shipment, school officials received an anonymous tip that the computers were used and that CyberNet had passed them off as new products to increase its margins.
The FBI investigated, and according to its report, several employees said the computers were remanufactured equipment from Compaq and that the boxes had red stickers that indicated as much--the same stickers Westra and other employees had witnessed the temp workers removing. According to the FBI report, Barton Watson, Krista Watson and vice president Jonathan Mast had told employees to remove the stickers, claiming they were expired warranty labels.
Hastings Public Schools filed a lawsuit against CyberNet, and the case was later settled out of court. Thus, authorities didn't pursue criminal charges against the Watsons, Horton or Mast. But the FBI file on Watson was becoming thick. Meanwhile, more and more employees began to suspect that the company's books were being cooked, wondering how CyberNet made as much money as it claimed to generate. "Barton would always tell us that the subsidiaries overseas were huge and were growing faster than the U.S. business, but it just didn't add up," McTaggart says.
Even when people did pinpoint Watson's fraud, they were no doubt afraid of crossing the chief executive and being sued. Nevertheless, the exodus of employees continued. After learning of the Hastings Public Schools scheme and seeing her colleague Westra hit with a lawsuit following his resignation, Wood left the company, too. "They were removing the stickers right there in the middle of the office, but everyone was afraid to say something," Wood says. "Everyone knew they could be sued if they left or made a complaint. But we all knew the truth."
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