The May Report: 10/06/2011: The True Story of Sports Publishing Versus Eric Lefkofsky

Editor and publisher: Ron May, ron@themayreport.com, ronaldmay@aol.com, www.themayreport.com , 773-525-3944.

If you missed an article, go here: www.tmronline.com/A55951/tmrarticles.nsf/vwFullNewsletter

Louis Brandeis: “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants.”
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TABLE OF CONTENTS

The Scoop section:
– Sports Publishing LLC., an Illinois
Corporation, Plaintiff,
vs.
Eric Letkofsky, Elizabeth Letkofsky,
Steven Zuccarini, Nicholas Galassi, Eric
Belcher, Orange Media, LLC, and
InnerWorkings, Inc., a Delaware
Corporation, Defendants
– Techweek 2012: Upgraded — Announcing the Techweek 2012 Conference & Expo // 15% Off Early Bird Registration

[Editor's note: May here. In the face of the sad news of the death last night of one the true greats in the history of the technology field, not just technology but business in general and not just business, but the culture at large and the whole world of that which inspires us as human beings -- what we might call the sacred within us -- it is hard to juxtapose the prosaic and profane content in this report, but the timing is not something I chose. The time for this report has been set for many months now. There is a kind of poetic justice here if you think about it, but that is for people who are far more eloquent than I am to muse upon.

Item 7 does make one wonder about whether the alleged Google acquisition of Groupon was all part of a larger set of misinformation being perpetrated.

There are many, many more questions this report raises....

Now to the completely trivial. Is there some connection between Orange Media and the contemporary Green Media of the Groupon era?

Happy birthday to Tommy "grifter" Thornton (Oct. 4th), Spencer "das" Maus (Oct. 6th) who has hit the big 6-0, and to Steve "snarkmeister" Lundin (Oct. 6th) who has provided this report with some of the most vile and nastiest lines.]
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______________________________
The Scoop section:
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Sports Publishing LLC., an Illinois
Corporation, Plaintiff,
vs.
Eric Letkofsky, Elizabeth Letkofsky,
Steven Zuccarini, Nicholas Galassi, Eric
Belcher, Orange Media, LLC, and
InnerWorkings, Inc., a Delaware
Corporation, Defendants

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
URBANA DIVISION
Sports Publishing LLC., an Illinois
Corporation,
Plaintiff,
vs.
Eric Letkofsky, Elizabeth Letkofsky,
Steven Zuccarini, Nicholas Galassi, Eric
Belcher, Orange Media, LLC, and
InnerWorkings, Inc., a Delaware
Corporation,
Defendants.
)
)
)
)
)
)
)
)
)
) No.
)
)
) Plaintiff demands trial by jury.
)
)
COMPLAINT
COMES NOW Plaintiff Sports Publishing LLC (“Sports Publishing”), by its
attorney, Daniel 1. Pope, and complaining of Eric Letkofsky, Elizabeth Letkofsky, Steven
Zuccarini, Nicholas Galassi, Eric Belcher, Orange Media, LLC, and InnerWorkings, Inc.
(“InnerWorkings”), a Delaware Corporation, avers as follows:
NATURE OF THE CASE
1. Sports Publishing, an Illinois company with its principle place of business
in Champaign County, has evolved from a one-room, single-title publishing shop in 1974
to employing over 60 full-time employees by 2005. It has published over 800 books,
with a national and international distribution, and seen annual gross sales of more than
$10.0 million in 2004 and nearly $8.0 million in 2005.

Page 2 of 15

2. Throughout Sports Publishing’s growth, there have been many challenges, both within the
company and throughout the publishing industry. As Sports Publishing has tackled each of these
new challenges, one thing has remained constant, quality management. Founder Joseph Bannon, Ph.D.,
and his son, Peter Bannon, M.B.A., have provided Sports Publishing and its predecessor
companies with sound, consistent leadership during the company’s growth.
3. InnerWorkings is a print broker formed by Eric Lefkofsky (“Lefkofsky”) and Richard A.
Heise, Jr. (“Heise”) in 2001. Lefkofsky is not an officer or director of InnerWorkings, but he
controls all aspects of the business through stock owned by his wife, Elizabeth, and companies
he controls such as Orange Media LLC, Incorp LLC, New Enterprise Associates 11, Ltd
Partnership and NEA Ventures 2005, and by his ability to hire and fire the executive
officers.
4. Lefkofsky has left a trail of defrauded investors since graduating from law school in
1994. His first victim was the City of Columbus, Wisconsin. They backed his idea to take over
a local clothing maker with promises he would create jobs using “proprietary” software.
Instead, he laid off workers and the company filed for bankruptcy protection.
5. The company’s bankers alleged in a lawsuit that Lefkofsky used the proceeds
from that company to create an internet start-up with Heise called Starbelly, an eerie reference to
the huckster in a Dr. Seuss story about “Sneetches.” There, Lefkofsky again promised investors he
had “proprietary” software that would revolutionize the way the marketplace worked.

Page 3 of 15

6. Through a family connection, Lefkofsky and Starbelly caught the attention of a company
called HA-LO Industries. Under very mysterious circumstances that became the focal point of
securities fraud litigation, and despite a due diligence investigation by Ernst & Young and
others that showed Starbelly’s software was neither “proprietary” nor even functional, HA-LO bought
Starbelly in 2000 for $240 million in cash and stock.
7. Lefkofsky and Heise quickly gained control of HA-LO and drove it into bankruptcy, but
not before enriching themselves. Securities fraud and bankruptcy litigation against
Lefkofsky and Heise and HA-LO quickly followed. Discovery in those cases revealed e-mails from
Lefkofsky in which he admitted HA-LO should engage in securities fraud. (See Exh. A) (“.. .lets
start having fun.. .lets get funky …lets announce everything…lets be WILDLY positive in our
forecasts…lets take this thing to the extreme…if we get wacked on the ride down-who gives a
shit…THE TIME TO GET RADICAL IS NOW…WE HAVE NOTHING TO LOSE…we (lie and) announce that
people have made offers to aquire (sic) (us)…”)
8. None of this sordid history regarding Lefkofsky or Heise was disclosed to
Sports Publishing when it entered into an exclusive arrangement with InnerWorkings in
2002. Instead, InnerWorkings promised Sports Publishing it had “proprietary” software that would
“revolutionize” the print business and would “dramatically” reduce Sports Publishing print costs
by 10-20% over market prices throughout the term of their relationship
9. Between 2002 and 2004, InnerWorkings was able to gain a strangle hold on the company’s
book publishing business. Beginning in 2005, the Defendants began to

Page 4 of 15

engage in a calculated and continuance conspiracy to secretly increase the company’s print costs by
as much as 55% over market prices. The Defendants did so through a variety of ways, more fully
set forth herein, with the intention of keeping its fraudulent conduct a secret from Sports
Publishing.
10. The Defendants engaged in this fraud to the detriment of Plaintiff and, on information and
belief, many other customers for three reasons: 1) to steal money from Sports Publishing and other
customers; 2) to create the illusion InnerWorkings was profitability in order to successfully
complete a fraudulent initial public offering for InnerWorkings, which it accomplished in August of
2006 and again in January of 2007 with a “follow-on” public offering that allowed the insiders,
like Lefkofsky and Heise, to cash out; and 3) to create the maximum disruption to Sports
Publishing’s business in order to force the company to sell itself to InnerWorkings for millions
less than its net worth.

JURISDICTION AND VENUE

11. Certain claims asserted herein are brought pursuant to the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq.; accordingly, this Court has jurisdiction
pursuant to 28 U.S.C. § 1331.
12. As to claims not involving laws of the United States, this Court has supplemental
jurisdiction pursuant to 28 U.S.C. § 1367 in that said claims are related to the claim asserted
under RICO and form a part of the same case or controversy.
13. This Court has venue pursuant to 28 U.S.C. § 1391(b).

Page 5 of 15

COUNT I- RICO

14. To Plaintiff’s information and belief, all the Defendants are engaged in a pattern of
long-term racketeering activity in violation of RICO. The scheme employed was a simple one. The
Defendants started an internet company (here InnerWorkings) promising to use “proprietary
technology and data base” to create a “competitive bid process” that would allow the delivery of
printed materials as “part of a comprehensive enterprise solution.” They used the United States
mail and telephone hundreds of times to accomplish the fraud and their conduct constitutes acts
indictable under the Federal Mail Fraud Statute, 18 U.S.C.1341 (Supp V 2005).
15. Representing itself as the “largest and fastest growmg enterprise print management firm in
the United States,” InnerWorkings promised hundreds of companies, including Sports Publishing,
that its “proprietary technology” enabled it “to channel client work through their network at
significantly reduced prices.” If a customer became an “enterprise” client, as Sports Publishing
did, InnerWorkings promised that customer it would install a “dedicated procurement manager to
handle the print production process” which would allow for even greater “payroll savings and
greater efficiency.” InnerWorkings promised “reduced overall costs without compromise.” A
10-20% discount over regular market prices was promised orally and in writing.
16. On information and belief, all ofthis was a lie. On information and belief, Lefkofsky
and InnerWorkings never had any “proprietary” software. Instead, Lefkofsky and the other
Defendants controlled and used InnerWorkings as an enterprise to conduct a continual pattern of
racketeering activity with the specific intent and pattern to deceive Sports Publishing and other
customers about its bills, to over bill Sports Publishing and

Page 6 of 15

other customers millions of dollars, to gain access to the customer’s distributors and banking
source, and to use them as unwitting accomplices to further their illegal ends, and eventually to
destroy Sports Publishing with the intent to buy it for millions less than its market value.
InnerWorkings used the early years of its dealings with its customers like the company here to gain
control over them.
17. Lefkofsky succeeded in his scheme as InnerWorkings billed Sports Publishing
hundreds of times, using the United States mail, for fraudulent amounts beginning in 2005 and
ending in 2007, and Sports Publishing paid those bills. The Defendants’ misconduct was not only
the “but for” cause of the company’s damages, it was the sole and proximate cause as the company
suffered an injury in fact. The bills were intentionally confusing in order to mask the
Defendants’ fraud, and InnerWorkings also engaged in a pattern of terrorist tactics to distract the
company. All of these illegal activities were intended to and did deflect Sports Publishing away
from the massive fraud Lefkofsky and the Defendants were engaged in.
18. Although there are many examples ofthe fraud, two examples will suffice. First, in 2006,
InnerWorkings created bills for the company in the name of the company’s biggest distributor,
Ingram Publisher Services (“Ingram”). The rate on the bills was two- to-three times the price
InnerWorkings quoted the company. InnerWorkings’ fraudulent representation caused massive
confusion for the company, misconstrued the true amount due InnerWorkings, and imperiled the
company’s relationship with its biggest distributor, Ingram. If InnerWorkings recorded these false
and fraudulent invoices as income on InnerWorkings balance sheet, it was also a massive securities
fraud on investors and creditors.

Page 7 of 15

19. Second, in its Annual Report for 2006, InnerWorkings reported net allowance for
“doubtful accounts” of only “$378,943 in 2006″ while at the same time assuring Sports Publishing
its now 2-year “open balance” by the close of 2006 was “$1,602,010.86.” (See Exh. B) Pursuant to 18
U.S.C. 1350, both Zuccarini and Galassi certified that the 2006 Annual Report “fairly
presents, in all material respects, the financial condition” of InnerWorkings. (See Exh. C).
Either InnerWorkings invoices to the company are false and fraudulent or InnerWorkings Annual
Report for 2006 is false and fraudulent. According to senior management, InnerWorkings has now
“moved” the company’s outstanding “debt” from an account receivable to a “long-term asset.”
20. Sports Publishing relied on Lefkofsky and the Defendants’ promises of reduced costs and
paid InnerWorkings for the inflated bills for more than two years beginning in 2005 and ending in
2007. During this timeframe, Lefkofsky and some of the other Defendants developed relationships
with Sports Publishing’s bank and the company’s key distributor, Ingram Publishers
Services, Inc., (“Ingram”) and began a subtle campaign to undermine their faith in Sports
Publishing. Lefkofsky falsely told Sports Publishing’s bank and Ingram that Sports Publishing was
deeply in debt to InnerWorkings when the truth was InnerWorkings had stolen as much as two million
dollars from Sports Publishing, and the company owed InnerWorkings no money at all.
21. In this regard, Lefkofsky was partially successful. He and some of the other Defendants
began to contact Sports Publishing’s bank and Ingram directly, telling them Sports Publishing was
not paying its bills and arranging direct payment to InnerWorkings. This scheme succeeded as
InnerWorkings and the company’s bank put pressure on the company to agree that Ingram could pay the
bank and InnerWorkings

Page 8 of 15

directly, and moneys due Sports Publishing began to go directly to InnerWorkings or to be held
captive by its bank. The company’s bank also raised the interest rate it charged the company and
tightened available cash to secure its borrowings. Lefkofsky and the other Defendants intended that
the effects of their illegal tactics would be economic catastrophe for the company, and they
succeeded.
22. Then Lefkofsky began to threaten Sports Publishing with ruin if it did not begin to fire
employees, make greater payments to InnerWorkings and give InnerWorkings greater economic control
over Sports Publishing that it otherwise could have gotten legally. Working in conjunction with
Sports Publishing’s bank, Lefkofsky effectively began to control Sports Publishing’s operations.
He decided what “allowance” the company would have to run its operations, made constant threatening
phone calls and threatened to force the company into bankruptcy if the company did not
meet his demands. Lefkofsky went so far as to threaten to have Mr. Bannon shot.
23. Having effectively almost destroyed the company, Lefkofsky then offered to buy them.
Sending a loyal employee to make the first offer, Lefkofsky eventually gave Sports Publishing a
“take it or leave it” offer that was millions below its fair market value, threatening to “put them
out of business” if they did not agree to his terms. Instead, the company fired InnerWorkings and
began working directly with printers where the full extent of the Defendants’ fraud became clear.
The audit the company performed revealed that InnerWorkings had over billed the company for every
book (over 300 titles) they arranged for publication in a two-year span.
24. As a direct and proximate result of Lefkofsky and the Defendants’ violations of
18 U.S.C. § 1962(c) and/or (d), and 18 U.S.C. 1341, Sports Publishing was

Page 9 of 15

damaged in its business and business reputation in the millions of dollars.

25. If not stopped, Lefkofsky and the Defendants will continue their illegal conduct.
Even today, Lefkofsky demands that the company’s debt to InnerWorkings exceeds $2,500,000, a
number the company must record on its balance sheet and which eliminates the company’s ability to
regain reasonable financing. The Defendants are also planning another initial public offering for a
company called Echo Global Logistics. Echo Global promises it has a “platform designed to save its
clients money” and an “innovative Business Process Outsourcing model that incorporates a superior
proprietary technology platform…” Lefkofsky and the other Defendants hope to go public with
Echo Global in the very near future.
WHEREFORE Plaintiff prays:

A. Judgment be entered m favor of the Plaintiff and against the Defendants,
jointly and severally, for compensatory damages and for treble damages and attorneys’ fees
pursuant to 18 U.S.C. §
1964(c); and,

B. For such other and further relief in the premises as may be appropriate.

COUNT II- VIOLATIONS OF THE ILLINOIS CONSUMER FRAUD AND DECEPTIVE BUSINESS PRACTICE ACT

26. Plaintiff repeats and realleges the allegations set forth in paragraphs 1-25, supra, as
if fully set forth herein.
27. At all times relevant hereto, there was in full force and effect the Illinois
Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq.

Page 10 of 15

28. Under Illinois’ Consumer Fraud Act, the use or employment of any practice
described in, for example, Section 2 of the Uniform Deceptive Trade Practices Act (815 ILCS 510/2)
in the conduct of any trade or commerce is unlawful whether any person had in fact been misled,
deceived or damaged thereby.
29. Sports Publishing is a consumer within the meaning of these consumer fraud acts given
that Defendants’ business activities with them involve trade or commerce and are
addressed to the market generally and/or otherwise implicate consumer protection concerns.
30. Defendants have committed unfair or deceptive acts by engaging in the acts and practices
alleged herein including, but not limited to, the regular and systematic over billing of Sports
Publishing as described herein.
31. Defendants misrepresented, concealed, suppressed or omitted the material fact that it was
over billing Sports Publishing with the intent that the Plaintiff rely on this deception so that
InnerWorkings would continue to receive money not due it without Plaintiff becoming aware of the
fraud.
32. InnerWorkings and the Defendants are in the business of print brokers and therefore they
have committed deceptive acts and practices in the area of trade and commerce.
33. As a direct and proximate result of the foregoing deceptive acts and practices of
the Defendants, Plaintiff was injured and sustained damages pecuniary nature.
WHEREFORE, Plaintiff prays for an Order from this Honorable Court as follows:

A. Entering final judgment in favor of Plaintiff against Defendants;

Page 11 of 15

B. Awarding Plaintiff compensation and damages, both compensatory and punitive, for the
harm they sustained by the Defendants’ actions;
C. A judgment awarding Plaintiff reasonable attorney’s fees, expenses of litigation,
including experts’ fees, pre-judgment interest and costs of suit; and
D. Granting such further relief as the Court deems just and appropriate.

COUNT III – UNJUST ENRICHMENT

34. Plaintiff repeats and re-alleges the allegations set forth in the Paragraphs

1-25, supra, as if fully set forth herein.

35. InnerWorkings and the Defendants have profited by their illegal schemes as alleged
herein.
36. Those profits constitute unjust enrichment for InnerWorkings and the other
Defendants and it would be inequitable under the circumstances for it to retain the benefits
received from Plaintiff without reimbursing Plaintiff for all over billing.
WHEREFORE, Plaintiff prays for an Order of this Honorable Court as follows:

A. For an accounting of all over billing and the entry of a final judgment in
favor of Plaintiff against Defendants for all damages, both compensatory and punitive, for the harm
they sustained by the Defendants’ actions;

Page 12 of 15

B. A judgment awarding Plaintiff reasonable attorney’s fees, expenses of litigation,
including experts’ fees, pre-judgment interest and costs of suit;
C. Granting such further relief as the Court deems just and appropriate.

COUNT IV – CIVIL CONSPIRACY

37. Plaintiff repeats andre-alleges the allegations set forth in Paragraphs 1-25, supra, as
if fully set forth herein.
38. .Plaintiff charges all Defendants with civil conspiracy under the laws of the State of
Illinois.
39. All Defendants knowingly and voluntarily agreed to, and participated in, a common scheme
to unlawfully bilk Sports Publishing and otherwise engage in illegal conduct to the economic
detriment of Plaintiff as alleged herein.
40. All Defendants had a “meeting ofthe minds” on their course of action to keep their
agreement secret from Plaintiff, to over bill Plaintiff, to libel the company to its bank, to
interfere with its relationship with its largest distributor, Ingram, to destroy it economically
and then buy it for less than full market value.
41. Lefkofsky planned, assisted and encouraged InnerWorkings and the remaining
Defendants to engage in illegal conduct against Plaintiff to its detriment, and succeeded.
WHEREFORE, Plaintiff prays for an Order ofthis Honorable Court as follows:

A. Entering final judgment in favor of Plaintiff against Defendants, for all damages,
both compensatory and punitive, including

Page 13 of 15

awarding Plaintiff reasonable attorney’s fees, expenses of litigation, including
experts’ fees, pre-judgment interest and costs of suit and treble damages; and
B. Granting such further relief as the Court deems just and appropriate.

COUNT V COMMON LAW FRAUD

42. Plaintiff repeats andre-alleges the allegations set forth in Paragraphs 1-25, supra, as
if fully set forth herein.
43. Lefkofsky, and behalf of himself and the other Defendants, made material
misrepresentations of material fact to the company in order to entice the company to agree
to an exclusive print agreement with InnerWorkings.
44. Lefkofsky promised that because of its “proprietary” technology, InnerWorkings could
save the company between 10-20% of its printing costs.
45. The company relied on those representations when agreeing to enter into an exclusive
printing agreement with InnerWorkings.
46. Those representations were false when made and remain false today.

47. Instead of saving the company between 10-20% of its printing costs, InnerWorkings
intentionally over billed the company millions of dollars.
48. The company paid those bills for two years and was damaged by the defendants’
fraud.

13
WHEREFORE, Plaintiff prays for an Order of this Honorable Court as follows:

A. Entering final judgment in favor of Plaintiff against Defendants, for all
damages, both compensatory and punitive, including awarding Plaintiff reasonable
attorney’s fees, expenses of litigation, including experts’ fees, pre-judgment interest
and costs of suit and treble damages; and
B. Granting such further relief as the Court deems just and
appropriate.

Respectfully Submitted,
Sports Publishing, LLC, by its attorney, DANIEL J. POPE
s/ Daniel J. Pope DANIEL J. POPE
PHEBUS & KOESTER
136 West Main Street
Urbana, Illinois 61801
Telephone: (217) 337-1400
Fax: (217) 337-1607
Lead Counsel
________________________________
Techweek 2012: Upgraded — Announcing the Techweek 2012 Conference & Expo // 15% Off Early Bird Registration
Subject: Techweek 2012: Upgraded — Announcing the Techweek 2012 Conference & Expo // 15% Off Early Bird Registration
Date: 10/6/2011 10:12:21 A.M. Central Daylight Time
From: info@techweek.com
To: ronaldmay@aol.com

techweek.com/conference/register/

Complete the Fall Survey by Oct. 14 to get 15% off Early Bird Registration!

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