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Integrity issues at IntegraClick?

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The panic level spiked the night of Dec. 1 inside IntegraClick.

Co-founder and CEO John Lemp assembled at least eight senior managers for a late-night meeting at the Sarasota-based Internet marketing firm. Some were called in from home.

Moreover, the meeting and what Lemp said there impugns the foundation on which IntegraClick is built. That is, that the company, which reported $120 million in 2009 revenues, might not be the superstar gazelle and jobs engine it has been portrayed. The adulation has run deep, coming everywhere from the Business Review to Sarasota County officials to former Florida Gov. Charlie Crist to Inc. magazine.

But on Dec. 1, according to allegations in a March 13 lawsuit filed in Sarasota Circuit Court, Lemp told senior executives to “delete incriminating data, emails and instant messages” that could become evidence in a federal investigation. Lemp was concerned the Federal Trade Commission was probing the company for alleged fraudulent Internet marketing activity, the suit contends.

FTC officials would neither confirm nor deny the existence of an investigation. But FTC spokeswoman Betsy Lordan said the agency recently increased its regulatory watch on Internet affiliate marketing companies. Those are businesses that form a network of advertisers and publishers to push products, from weight-loss supplements to teeth-whitening gels. Affiliate marketing is central to IntegraClick's business model.

Clearwater attorney Ryan Barack filed the lawsuit against IntegraClick LLC on behalf of Rob McAfee, former IntegraClick vice president of technology. McAfee contends he was wrongfully terminated under the Florida Whistleblowers Act for his refusal to follow Lemp's evidence-destroying directive.

Lemp, the suit contends, requested McAfee to “'erase the paper trail.'” Lemp then demanded “McAfee create a computer account with administrative rights that would not be linked back to Lemp so that Lemp could” delete incriminating emails and instant messages, the suit states. McAfee previously consulted on software projects with the World Bank and Nike.

In a March 13 interview with the Business Review, Lemp denies the allegations in the lawsuit. He denies the Dec. 1 senior management meeting occurred in the manner described in the suit.

Lemp says the FTC is not investigating IntegraClick or its subsidiaries, which includes Sarasota-based Clickbooth. Lemp says, instead, IntegraClick and the federal agency have an ongoing relationship. “Being one of the bigger players out there,” says Lemp, “you have to.”

In response to allegations he asked senior management to delete incriminating evidence, Lemp says “nothing of the sort” occurred. “What we should focus on,” says Lemp, “is the greed element of why someone would file a lawsuit like that.”

Fast growth
Several other potential problems linger for Lemp and IntegraClick, which has about 125 employees. Lemp and Amanda Huntington, a college friend, co-founded the business out of Lemp's one-bedroom apartment in 2002.

By 2004, the pair began to capitalize on an emerging Internet advertising business model called click-per-action. The gist of CPA: Advertisers only pay for an ad when an action, say a purchase, is taken. The traditional Internet advertising model is to simply pay-per-click.

Lemp, a competitive and gregarious entrepreneur who frequently wears sports coats with T-shirts to the office, was hooked on the CPA model. Customers were, too, at least based on sales growth. The firm says annual revenues grew 400% from 2007 to 2009, from $24 million in sales to $120 million. It stopped publicly disclosing revenue figures after 2009, though in a report with Sarasota County in early 2010, the company projected at least $250 million in annual revenues by 2011.

Lemp maintains IntegraClick has a high ceiling for growth in sales and jobs. In late 2009, when the company applied for tax-free federal bonds through Sarasota County, it projected at least 100 hires by 2011. Lemp, in previous interviews with the Business Review, has projected hundreds of more hires for the firm.

But now, foremost among its challenges: At least six executives have left the firm over the past 18 months, including three who left in January — within days of when McAfee alleges he was wrongfully terminated. The three who left most recently are co-founder Amanda Huntington; compliance and enforcement director Ziare Brown; and general counsel Eric Grindley.

Brown, reached by the Business Review in Texas, now works at another Internet marketing firm, a business run by former IntegraClick acting president and chief marketing officer Graham Gochneaur. Brown declined to comment on the allegations against Lemp.

Grindley also declined to comment. He moved about three weeks ago to North Carolina after he left IntegraClick. Huntington could not be reached for comment.

Lemp says he isn't concerned about the executive departures. “There has been a transformation of the company,” he says. “Any successful business will have those transformations.”

Lemp further points out some former executives, such as Gochneaur and former vice president of corporate development Ravi Ghai, left for family reasons months before the McAfee allegations. Gochneaur and Ghai declined to comment on the allegations in the lawsuit.

The second potential hurdle IntegraClick faces stems from the FTC. According to FTC press releases and Internet marketing industry executives, the agency has especially begun to focus its investigations on companies that use bogus “free” products to deceive consumers.

For example, in February, the FTC reached a $359 million settlement with 10 Internet marketing companies run by Jesse Willms, a Canadian-based Internet marketing operator well known in the industry. The FTC alleges Willms' companies used “negative-option” marketing, where a seller interprets a consumer's inaction on an offer he signed up for as permission to charge for the product or service.

“The defendants used the lure of a 'free' offer to open an illegal pipeline to consumers' credit card and bank accounts,” David Vladeck, director of the FTC's Bureau of Consumer Protection, says in a release.

Lemp says IntegraClick, which has the phrase “integrity, honesty, technical superiority” adorned to some invoices, hasn't and won't engage in that type of activity. Says Lemp: “We're known in the industry for being the company that does things the right way.”

But McAfee, who referred all questions to his attorney, contends Lemp called the Dec. 1 meeting initially with a large group of senior IntegraClick officials. McAfee alleges Lemp then ordered three senior executives to leave the room, including Brown, the compliance chief, and Grindley, the lead attorney. Lemp then delivered his instructions to destroy evidence, according to the suit, to the remaining executives and later privately to McAfee.

McAfee, the suit further contends, was fired from the company in early January for not following Lemp's orders. McAfee seeks reinstatement of his job, and compensation for lost wages, among other requests.

A Far Reach
In its mission, Sarasota-based IntegraClick is an Internet marketing and advertising company. But the company picked up new roles in late 2009 and early 2010:

In one, it became a limited partner with Sarasota County and the federal government. In another, it became a commercial real estate landlord. The relationships are tied together.

On the government side, IntegraClick received $7.4 million in tax-exempt bonds through a federal stimulus program in December 2009. The bonds, made available to local companies through a recovery-zone program, are overseen and approved by Sarasota County officials. The county qualified for the federal program because of its high rate of unemployment and foreclosures at the time.

The bonds helped IntegraClick purchase and move into its new headquarters in early 2010. The complex is 79,000 square feet, spread through two buildings, just west of Interstate 75 in north Sarasota County. The company paid $5.75 million for the property.

That's why the company is now a landlord. It bought the space to have room to grow, and in the meantime, it leases offices. Current tenants include a mobile phone marketing firm and a dermatology practice.

Praise Party
IntegraClick, a Sarasota-based Internet marketing firm, has been one of the most lauded companies in the Sarasota-Bradenton region over the past four years. Awards and recognition include:

• The Business Review named co-founder and CEO John Lemp its Entrepreneur of the Year in 2010. A May 14, 2010, Business Review story cited the company's 400% three-year revenue growth, from $24 million in 2007 to $120 million in 2009;

• Technology Company of the Year from the Economic Development Corp. of Sarasota County, an award bestowed upon Lemp at the EDC's Hall of Fame luncheon in 2008. The EDC called IntegraClick one of the “strongest, fastest-growing technological companies headquartered in this region.”

• The Tampa Bay Technology Forum named IntegraClick its Emerging Technology Company of the Year in 2008;

• The Governor's Entrepreneurship Award, presented to Lemp in fall 2009 by the office of then-Florida Gov. Charlie Crist. The award is for companies that “set the standard for entrepreneurship and creativity.”

• Florida Trend magazine named the firm one of the state's best companies to work for in 2009;

• Inc. Magazine ranked the firm the fastest-growing advertising and marketing company in the country on the Inc. 500 list in 2009.

• The Tampa Bay Business Journal named the company to its “Best Places to Work” list in 2011.


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