Misgivings spoil plans of search start-up

Misgivings spoil plans of search start-up

An
underwriter has pulled out of the initial public offering for Accoona,
a new Internet search engine that former President Bill Clinton helped
introduce.

The New York Times / By
Saul Hansell

Published: August 21, 2007, 9:50 PM PDT

Three years ago, at a news conference at Tavern on the Green
restaurant that featured a free-flowing bar, former President Bill
Clinton helped introduce a new Internet search engine, Accoona, which
was said to be powered by innovative artificial intelligence
technology.

The event in Manhattan was meant to build interest in the company, founded by Marc Armand Rousso, who had promoted penny stocks and sold stamps.

Hoping to cash in on the excitement in the markets for Internet stocks
and search engines in particular, this month Accoona registered with
the Securities and Exchange Commission to sell its stock to the public.

The $80.5 million initial public offering, managed by a
little-known underwriter, moved forward despite the long history of
Rousso, who has had several brushes with the law. He pleaded guilty to
stock fraud charges in the United States in 1998 and was convicted of
stock fraud in France in 1999. He has settled several suits brought by
investors who claimed stock losses.

 

 

 

 

On Monday, Maxim Group, the underwriter, pulled out of the offering,
though it did not cite any specific reason for its change of heart.
"After completing our due diligence review, we have chosen to
disassociate ourselves with the company," said Edward L. Rose, the
firm’s vice chairman and general counsel.

It was not the first time an offering had been withdrawn. This year,
Accoona abandoned plans to list its shares on London’s AIM market.
Accoona said it was in discussions with other potential underwriters
and hoped to proceed with a public offering.

Whatever the reasons for backing out, it is not just Rousso’s
background, some of which is described in the company’s prospectus,
that raises questions for potential investors.

Very little of Accoona’s $149 million in revenue last year came
from its search engine. Nearly all its revenue was from several online
electronics dealers it also owns. Advertising very low prices, these
sites have generated numerous consumer complaints about aggressively
selling accessories, spotty product availability and poor customer
service.

"They are clearly not a search company," said Joshua Stylman, the
managing partner of Reprise Media, a search advertising agency that is
part of the Interpublic Group. "In all likelihood, they want to
capitalize on the multiple that search companies get."

‘Just not deilvering’
Accoona.com attracted only 106,000
visitors from the United States in July, according to comScore, which
monitors Internet traffic. To Danny Sullivan, the editor of Search
Engine Watch, the minuscule audience for Accoona can be traced to its
search results, which he said were filled with links to second-tier
sites and those of promoters trying to manipulate search engines with
various tricks.

"It’s been two years they have been saying they have a great
search engine, and they are just not delivering," Sullivan said. "They
can’t say it’s because they didn’t have enough promotion. You can’t get
any noisier than having the former president of the United States come
out and pitch for you."

Valentine Zammit, Accoona’s chief executive, insisted in an e-mail
exchange last week that the company had a valid strategy based on three
businesses–search, electronic commerce and a new advertising exchange.

"I can assure you that Accoona is a genuine company with legitimate
operations, and one which is very excited about the potential of its
products," wrote Zammit, an accountant who once ran a division of True
North Communications, an advertising company. He added, "If there are
prospective investors who do not believe in judging each situation on
its own merits or who don’t believe in new beginnings, then those
people may choose to not invest in Accoona."

He said that Rousso was not part of the company’s management, though he
was paid more than $3 million during the last three years as a
consultant to Accoona and he owns 14 percent of the company’s stock.

Moreover, Alessandra Coderoni, whom Rousso married in August 2006, was
paid $1.4 million to serve as Accoona’s chief operating officer in the
15 months before the marriage. That was far more than any other Accoona
executive had been paid.

According to news accounts and court documents, Rousso’s recent legal
troubles began when he started doing business in 1995 with Philippe V.
Hababou, who was charged with check fraud in France and later
convicted. The two took control of several companies, promoted them to
the public, and liquidated their holdings at a profit through a series
of brokerage accounts in various names.

The dealings between Rousso and Hababou began to unravel when a
cashier at the Trump Taj Mahal casino in Atlantic City noticed
unusually large transactions in 1998, which turned out to be an effort
by the two men to launder money stemming from their schemes.

Rousso was arrested, and he pleaded guilty to securities fraud
and money-laundering charges. He was sentenced to probation, a $200,000
fine and forfeiture of $4 million in assets. He was also banned from
working in the securities industry.

Hababou pleaded guilty to fraud and illegal campaign
contributions. In 1999, Rousso was also convicted of securities fraud
in France, related to selling American stocks to European investors at
inflated prices. He was fined 120,000 euros.

He was also caught up in the investigation over illegal campaign
contributions to the 1996 Senate campaign of Robert G. Torricelli of
New Jersey because he had raised money with a partner who later pleaded
guilty in that case.

Zammit also said that Rousso’s past legal troubles have no
bearing on Accoona’s operations. Rousso did not return a call
requesting comment for this article.

Rousso has associated Accoona with many well-known figures
besides Clinton. He attracted Eckhard Pfeiffer, the former chief
executive of Compaq, to be Accoona’s chairman. Stuart Kauder, a former
executive for DoubleClick, served as chief executive. Earlier this
year, both Pfeiffer and Kauder, resigned from Accoona for what the
company said were personal reasons. Neither man would comment on their
reasons for leaving.

Accoona’s prospectus concedes its search engine has struggled
and it says the company is developing a new approach to search. The
company is also counting on lead generation–finding prospects for
mortgages, insurance and similar services–but it has yet to attract
many advertisers.

In 2005 and 2006, Accoona bought three companies based in
Brooklyn that operate discount electronics retailers, including
ButterflyPhoto.com, NYLiving.com, BestBuyPlasma.com,
Digitaletailer.com, Lcdtvs.com and BuyersEdge.com, a price comparison
service.

ButterflyPhoto, the largest of these sites, has an unsatisfactory rating from the New York Better Business Bureau.

Andre Brysha, the vice president of marketing for Ritz Interactive, a
large Internet camera store, said that Butterfly was one of a group of
online dealers that lure customers with low prices and then use
aggressive tactics to get them to spend more money. "You will see
prices online at $100 below cost," Brysha said. "Then they will call
you to say that with this particular product, you need to buy this
expensive battery to go with it."

In an e-mail message, Zammit defended the practice. "Cross-selling and
up-selling are legitimate business activities used by many companies
and which many of our customers appreciate as this better enables our
customers to determine and purchase the goods they want as well as the
accessories they need," he wrote, declaring the company is "committed
to providing the highest level of service and observing the highest
ethical standards."

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