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Shades of Enron at MarchFirst

It wasn't just the collapse of the dot com bubble that killed MarchFirst. Instead it was mismanagement, deception and wasteful spending on the part of its CEO and leadership team that did in the Web services giant, according to documents filed this week in bankruptcy court.

According to a filing by the trustee appointed to the bankruptcy case, which was reported this week in The Chicago Tribune, MarchFirst executives, including former CEO Robert Bernard, participated in a number of wasteful dealings and deceptive actions, including actions taken to create an illusion of success that far outshined the company's actual performance as well as building an infrastructure for growth that was not needed.

The filing, made by trustee Andrew Maxwell, charges Bernard and other company officials with 11 counts of breach of fiduciary duty.

One of the most damaging charges against the company's leadership is that MarchFirst invested money in start-up companies that would then turn around and give the money back by purchasing consulting services. The moves were allegedly designed to dupe investors and analysts by giving them a false impression of the company's financial performance.

In particular, the filing cites Bluevector Strategic Partners LLC, a company created by MarchFirst, calling it a "conduit" for the Web consultant to use its own funds to improperly book revenue. The filing claims executives authorized Bluevector to invest close to $20 million of MarchFirst's money into more than a dozen companies that then purchased MarchFirst services.

The document also claims the company wasted a significant amount of cash trying to create a deceptive image of growth, including investing in things like unnecessary recruitment drives, the use of corporate jets and the construction of an elaborate corporate headquarters. According to the filing, that facility was to include 380,000 square feet of office space and more than 650 covered parking spaces for IT consultants who spent most of their workday out of the office.

The filing also alleges that on occasion, MarchFirst managers would call "on the bench" consultants to come in to work so they could feign productivity for prospective clients.

Additionally, the document questioned other deals completed by Bernard and MarchFirst, including one in which MarchFirst went into contract with Fourth Floor Consulting, a company that Bernard personally invested $300,000 and lent $1.32 million. Fourth Floor paid MarchFirst $3.55 million to develop business model software, only to have MarchFirst later pay Fourth Floor $4.155 million to use the product it had created.

The company, a roll up of Whittman-Hart and USWeb/CKS which was for a very brief time considered the largest Web services firm in the industry, filed for Chapter 11 reorganization in April of 2001, only to convert its filing to a Chapter 7 liquidation weeks later. It has since sold off assets to competing services firms, including divine and SBi.

Bernard, who has since founded enterprise commerce solutions provider Form++ Function Consulting, could not be reached for comment Friday.

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