A pair of investors in Back9Network have sued the company, claiming its executives lied to them about several key aspects of the network's health.
William and Janet Ghio made four separate investments in Back9Network from 2012-2014 for 62,500 shares of series B preferred stock, including a final $360,000 investment in December 2014, according to a suit filed March 31 in Connecticut Superior Court. The Ghios allege Back9 executives did not disclose to them before that final investment that the company was paying DirecTV some $7 million annually to air their channel. The couple also claims the company told them in December 2014 that reported layoffs had not happened and the company was not on the verge of going out of business.
On Jan. 9, the company missed payroll for non-hourly employees. Then on Jan. 26, Back9Network announced it was eliminating 35 positions, cutting its workforce by some 40 percent. On Feb. 23, the Hartford-based company announced it was suspending operations while in search of new capital. The Ghios say they never received stock certificates from their final investment before the company ceased operations.
Two separate Back9-related groups are trying to raise the company-saving capital. Company CEO Charles Cox, president Carlos Silva and COO Reid Gorman are one faction trying to garner investments, while ousted co-founder and former CEO Jamie Bosworth is also attempting to court investors.
The company had raised somewhere in the area of $40 million in capital before launching on DirecTV. However, the lawsuit alleges Silva told the Ghios that the company really needed closer to $100 million to be a viable network.
The Ghios claim Bosworth, Silva, Gorman and Executive Vice President of Investor Relations Paul Pendergast were involved in the solicitation of their investments. They're named as defendants in the suit along with Back9Network Inc. The filing has several inaccuracies in it, including that Back9Network had been paying Comcast to air its channel.
The suit asks the court to award the Ghios with a full return of their investment with interest, payment for personal damages and legal fees.