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Ex-CFO of L90 Facing Charges

Regulators allege in civil and criminal complaints that Thomas Sebastian inflated revenue at the online advertising firm.

September 26, 2003|Kathy M. Kristof | Times Staff Writer

Securities regulators and the U.S. attorney's office, working with the FBI, filed criminal and civil fraud charges this week against the former chief financial officer of L90 Inc., a Web-based advertising company that was once based in Marina del Rey.

Thomas A. Sebastian, 39, allegedly participated in a scheme to generate fraudulent revenue for L90 through advertising barter transactions with other Internet companies, including Westlake Village-based Homestore Inc., according to civil and criminal complaints filed in Los Angeles.

Sebastian resigned from L90 in March 2002. The company, now known as MaxWorldwide Inc., previously settled related charges and moved its headquarters from Southern California to New York.

Several other L90 executives previously pleaded guilty to similar charges and have cooperated with authorities.

"These charges against yet another corporate executive exemplify our continuing commitment in addressing corporate fraud," said Ronald L. Iden, the FBI's assistant director in Los Angeles. "Neither the FBI nor the investing public will tolerate 'crime in the suites' any more than we would crime in the streets. The only difference between these types of crooks is how they dress for work."

Neither Sebastian nor his attorney could be reached for comment Thursday.

L90, through a subsidiary called WebMillion.com, engaged in a series of barter transactions with other Internet companies in late 2000 and 2001. The firms traded unsold advertising space, authorities allege, and L90 fraudulently recorded revenue from the trades without disclosing that the revenue resulted from barter, not actual ad sales.

The transactions inflated L90's revenue by $4.3 million, or almost 8%, from the third quarter of 2000 through the third quarter of 2001, allowing the company to hit analysts' quarterly revenue estimates, according to the complaints. That allowed Sebastian to profit by receiving about $243,000 in bonuses that were tied to hitting the revenue targets, securities regulators said Thursday.

Sebastian, who served as L90's chief financial officer from July 1999 to March 2002, hid the nature of the transactions from the company's auditors and lied to both auditors and analysts about the company's finances, the complaints allege.

The criminal complaint, which was filed late Wednesday in U.S. District Court in Los Angeles, charges Sebastian with conspiring to commit securities fraud. If convicted, the charge carries a maximum sentence of five years in prison.

The Securities and Exchange Commission's civil complaint, filed Thursday in U.S. District Court in Los Angeles, seeks a permanent injunction, repayment of all ill-gotten gains, an order barring Sebastian from serving as an officer or director of a public company and unspecified civil penalties.

"Corporate executives, board members and auditors are ultimately responsible for accurately depicting the financial condition of a company," U.S. Atty. Debra W. Yang said in a statement. "Any responsible party who knowingly misleads the investing public will be subject to the most vigorous prosecution, as well as new sentencing laws that carry significant prison terms for those who are found guilty."

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