Sex.com Dirt: Inside Details of What Went Wrong with Sex.com

New dirt on Sex.com exposed in court filings.

Documents filed in a bankruptcy case involving Sex.com owner Escom, LLC, provide intriguing details into who actually owns Sex.com and what went wrong with the company.

DOM Partners, a creditor and an investor in Escom, filed the papers in response to an involuntary bankruptcy filing initiated by Mike Mann against Escom to halt the auction of Sex.com.

In a motion to dismiss (pdf) the petition for bankruptcy, DOM alleges that Mann is “operating ESCOM” (the company that owns Sex.com) and “has been unable to repay DOM’s outstanding secured debt of $4,313,276.16”.

DOM Partners loaned $4.5 million to Escom in 2006, and also made an equity investment of $1 million. $1.5 million of the loan was later paid off by another investor — Nothin’ But Net, LLC — that received an equity stake in Escom. But the remaining $3 million loan became due on January 12, 2009 and was not paid. DOM gave notice of default on the loan the next day. It says it tried to negotiate to settle the debt, including the potential of buying Mann’s companies’ interests in Escom. It deposited $6 million in escrow for such a potential purchase.

When DOM made its initial loan to Escom in 2006, Mann’s Washington Technology Associates loaned Escom $5 million and invested $1 million as well.

Several other investors joined in, according to the filing: “Nuthin’ But Net, LLC”, which paid off $1.5M of DOM’s loan, “I95 Investment Group” invested $400,000 in equity, and iEntertainment has a $2.5 million junior secured loan.

According to the court filing, Escom is required to be managed by its three founding members — DOM, Washington Technology Associates, and Domain Name Acquisition Group — which must unanimously agree to file a voluntary bankruptcy petition. Domain Name Acquisition Group’s managers include Andrew Miller of Internet Real Estate Group and Built to Last, LLC, which is managed by Mike Zapolin, also with Internet Real Estate Group. Domain Name Acquisition Group invested $2,800 and “The Domain Name Rights” in return for 28 class A membership rights in Escom.

DOM claims that Mann’s Washington Technology Associates (WTA) manages Escom. Its CEO Del Anthony reports to WTA’s chairman, Mike Mann.

The filing states that Escom only has the domain name and “some cash” as assets. It has little income and just one employee, and no working capital to finance development of the domain name, according to DOM. In a declaration to the court (pdf), a lawyer representing DOM Partners claims it has been denied access to Escom’s books for the last year. A representative of Escom indicated the company has about $100,000 in cash.

By the time Mann filed the involuntary bankruptcy petition against Escom, several bidders had already been qualified for the Sex.com auction that was to take place the next day, claims DOM. These bidders had deposited $1 million and flown to New York for the auction.

DOM is asking the court to dismiss the “bad faith” bankruptcy filing so an auction can go forward. DOM believes an auction will satisfy at least the secured debt owed by Escom.

Other interesting documents filed with the court:

–Original loan documents for Escom including interest rates and repayment terms

–Notice of default, sent to Andrew Miller, who is known in the industry an investor/founder of Internet Real Estate Group. He is a manager of Domain Name Acquisition Group, which owns part of Escom.

-Escom LLC’s formation/LLC documents part 1 and part 2 with signature lines for Andrew Miller, Mike Zapolin, and Robert Seaman (attorney for DOM Partners)