Will Compulinx Give All MSPs a Bad Name?

The trust that is the stock-in-trade of MSPs was tarnished last month when federal agents raided the home of popular New York MSP owner Terrence Chalk, charging him with fraud and identity theft. In the wake of the charges, other regional MSP players were quick to declare Chalk's enterprise a fraudulent house of cards and to distance themselves from the accused scammer.

But those with the biggest stake in the MSP model, successful managed service providers and those who represent the industry, concede that sketchy players remain on the fringes of the business. Many misrepresent their capabilities to make sales and are only found out when their Ponzi schemes collapse. The only way to safeguard the trust that supports this trust-based business, insiders say, is to withstand the public criticism and expose the crooked players.

"This is the product of an effort to get into managed services quickly without much regard for actual abilities," says Charles Weaver, founder and president of the MSP Alliance in Chico, Calif. "There are plenty of companies dabbling in managed services ... to the detriment of the consumer."

Federal law enforcement officials raided Chalk's White Plains, N.Y., home and arrested the Westchester County businessman on charges of stealing the identities of his employees in order to secure fraudulent loans, lines of credit and credit cards. Chalk, 44, was arraigned in federal court the following day along with his nephew, Damon T. Chalk, 35, on charges related to submitting some $1 million worth of credit applications using the names and personal information -- names, addresses and social security numbers -- of Compulinx employees. Terrence Chalk remains held on $250,000 bond. Damon is being held without bail.

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Since the arraignment, the Compulinx Web site has gone dark and phones at the White Plains company go unanswered. Numerous messages left on the Compulinx Services Center voicemail have not been returned.

Insiders speculate that Chalk had started the alleged illegal scheme to amass credit in a desperate attempt to save his failing business and keep up the facade of success he'd maintained for years. MSPA officials said they rejected his application for membership when he refused to pay the annual dues. Others say he regularly misrepresented the assets and capabilities of Compulinx.

That, says one MSP, is not a rare occurrence in the business.

"I've been approached by so-called service providers who are in a rush to see our NOC and are not asking legitimate questions," says Craig Brenner, CEO of New England Data Services . "You know they are misrepresenting themselves to the customer. They are telling people they have a data center. What they have are some servers in an office.

"We have to expose these things when they happen. The real MSPs who care and can make a proper investment, they sell within their scope of services. There are a lot of folks on the edges of managed services right now ... a lot of folks not committed to the model. You can't play with being an MSP."

In addition to weeding out those who can't afford the annual dues, the MSP Alliance asks all members to abide by a code of ethics that governs standards of care for consumers, officials say. The organization also routinely dismisses MSPs from its ranks based on feedback from users and partners, and is in the process of expanding both its consumer awareness campaign and its MSP accreditation process.

"We are trying to self regulate," says MSPA co-founder Celia Weaver. "We don't want to see the dumping of inexperienced people into the market. This is a not a get-rich-quick scheme."

The U.S. Attorney's office in White Plains, which is handling the case, has not determined what will happen to Chalk's business assets and would not comment on whether the Chalks had compromised customer data at the same time they are accused of misappropriating employee information, according to Yusill Scribner, spokesperson for the agency. Calls to the FBI field office that handled the investigation were not returned.

Chalk's attorney, Mayo Bartlett of White Plains, says he hadn't spoken to his client about the potential technology fallout for Compulinx's clients, adding that he hopes the Compulinx business could continue uninterrupted. Messages left on Terrence Chalk's voicemail seeking comment on the future of the company were not returned.

Other MSPs who had worked with Chalk said there were very few customers or employees left to be inconvenienced by the Compulinx collapse. Former business associates say Chalk's claims that Compulinx had hundreds of customers with data hosted on a massive IT infrastructure of 300 servers and 40 TB of storage in four data centers is nothing more than urban legend.

"[Chalk] got very politically connected and he made a lot of promises that resulted in an image that he walked on water. But the bottom line is, he had one cabinet in our facility, that was it," says Christopher Furey, CEO of Savvy Networks in Tarrytown, N.Y. "The other three data centers don't exist."

Furey, who served with Chalk on a number of boards, including the Westchester Information Technology Cluster, says Savvy was forced to discontinue Compulinx collocation services on July 4, 2006, after a series of bounced checks. Furey says Compulinx tried to remove its equipment when outstanding charges could no longer be paid by check or credit card. The matter was ultimately settled for cash, he says.

As for claims that Compulinx employs some 50 people, Furey, who has hired some former workers from his White Plains, N.Y., competitor, calls that claim "patently ridiculous."

"There's about six people left working there [at Compulinx]," Furey ys

Chalk claims to have amassed an impressive list of clients for a one-man, home-based business. According to the Westchester County Business Journal, which published several glowing profiles of Chalk, the fledgling company signed on Pfizer, Tropicana, Newsday,and Scudder for special IT projects.

The WCBJ reported last year that Compulinx was expecting exponential growth after Chalk claimed to have inked a deal with a "large, multibillion-dollar global financial services company [with] almost 40,000 users."

The five- to seven-year contract had Chalk making plans to add 10,000 square feet to the company's White Plains headquarters and 100 more workers, according to the report.

In hindsight, it's easier to see that there wasn't much truth to Chalk's claims, a common problem within the MSP community, according to Dallas-based attorney Rob Scott, an MSPA board member.

"The relationship with an MSP is a relationship of trust. The way to mitigate the impact of a story [such as Complinx] is to encourage full disclosure," he says. The customers are not stupid, and they don't have a problem with service providers who are up front about everything. It's when you don't tell them that problems arise. You can't hide weaknesses."

In addition to the identity theft charges, Terrence Chalk is also charged with racking up more than $100,000 in unauthorized credit card charges. If convicted, he faces 165 years in prison and $5.5 million in fines, prosecutors say. Damon faces a maximum sentence of 35 years imprisonment and $1.25 million in fines.