CyberNet's Grim Anniversary

Twelve months after CEO Barton Watson took his life, the tragic saga of the CyberNet Group is no closer to being put to rest.

Watson, 44, died at his home of a self-inflicted gunshot wound on Nov. 24, 2004, shortly after federal agents raided his company's headquarters in Grand Rapids, Mich., and shut down the solution provider as part of a sweeping investigation into fraudulent business and financial practices (see "Dead On Arrival").

According to FBI documents obtained by VARBusiness, other executives have been implicated in the investigation, including Watson's widow, Krista Kotlarz-Watson. According to an FBI affidavit, federal authorities believe CyberNet's executive team was involved in a Ponzi scheme, using bogus financial documents and phony collateral to fool banks into loaning the company millions of dollars, then using the proceeds of each new loan to pay off the debts of previous loans in an endless cycle of fraud.

So far, however, no charges have been announced. "The case is still ongoing. It's a pending matter," says FBI special agent Dawn Clenney.

Ex-CyberNet employees say not much has happened since Watson's suicide and the company's implosion last fall. "It has been stagnant for a while," says John Straayer, who co-founded the company with Barton Watson in 1989 that became CyberNet. "We haven't seen any charges filed again Krista or others, but we assume the investigation is still going on," he says.

Still, there have been a few developments. For example, dozens of duped creditors and lenders still have more than $100 million in claims against CyberNet. The company's assets were auctioned off in March, netting $1.1 million--much less than some expected. At one point, CyberNet claimed to have more than $300 million in annual sales. In reality, it typically generated only between $10 million and $20 million in business each year, which was revealed after the company collapsed.

Creditors next looked to Barton and Krista Watson's personal property, but problems have stalled those proceedings as well. For example, this past summer, the Bartons' lavish home was put up for sale. While valued at more than $1 million, the winning bid for the home was just $695,000. But the mortgage lender, Washington Mutual, blocked the sale because the bid was $100,000 less than the lender sought. At press time, the home was still on the market.

Those companies affected by the CyberNet scandal are slowly returning to normal. That includes AyalaPort, a data-center company owned by a Filipino conglomerate that was acquired by CyberNet and renamed Global Data Hub just weeks before the FBI and IRS agents' raid. After the scandal broke, AyalaPort's parent bought back its former subsidiary. Nine months later, AyalaPort officially severed all ties with CyberNet and resumed business under its old name.

Meanwhile, former CyberNet employees continue to get on with their lives at new jobs and technology companies.

"Everyone I've talked to has moved on and put this behind them," says Rob King, who joined another Grand Rapids-area solution provider, SourceIT, after CyberNet shut down. "A lot of us still keep in touch with one another, but we've all started the next phases of our lives."