his is a complicated story of a lawsuit with twists and turns and plenty of names to follow. As one of the attorneys involved described it, there are a lot different players and a lot of corpses left lying along the way.

On behalf of bankruptcy trustee Howard Ehrenberg, attorneys with the Los Angeles-based law firm Pratter & Young filed a lawsuit in U.S. Bankruptcy Court against iPayment, Inc. of Nashville, Tenn.; the company's Chairman Greg Daily; CEO Carl Grimstad; CFO Robert Torino and several other individuals and companies including law and accounting firms.

The complaint, dated July 23, 2004, asks for damages including fees for general damages ($52,650,000); treble damages ($157,950,000); interest on the damages dating from July 2000; attorneys' fees and other costs associated with bringing the suit. The complaint names Ehrenberg as plaintiff in the suit. He is the Chapter 7 Trustee appointed by the bankruptcy court to oversee the estate of a company called ITSV, Inc. Allegations against iPayment and the other defendants include fraud, fraudulent transfer, conspiracy to defraud and violating California's Business and Professions code.

According to the plaintiff's attorney, Michael Pratter, Ehrenberg is pursuing assets on behalf of ITSV's creditors and shareholders that include the value of stocks sold to iPayment.

Additional companies named as defendants include accounting firms Arthur Andersen and Ernst & Young; law firms Morgan, Lewis & Bockius and Brobeck, Harrison and Phleger; Creditcards.com; Caymas LLC and several other payment processing companies.

Here's where things really start to get complicated. The core issue involves a deal through which the investment entity Caymas LLC, whose principals were Daily and Grimstad, bought a company called Creditcards.com and renamed it iPayment. Creditcards.com and ITSV were founded originally by Richard J. Gordon.

Pratter said that in July 2000, iPayment agreed to buy a list of 20,000 names from ITSV but never paid for it, or for ITSV's assets. Ehrenberg's suit alleges that in 2002 those individuals and their company, iPayment, perpetrated fraud against ITSV; the suit also alleges that the company's accountants and law firms assisted in the fraud when they formed the company.

The plaintiffs say that iPayment was in violation of disclosure statutes, including the Sarbanes-Oxley Act, when it failed to disclose to potential investors and creditors of the predecessor companies the true nature of its stock valuations; full disclosure to investors before public offerings is required.

"They manipulated the stock price to get complete control of the company and then took it public," Pratter said. "There was fraud committed in the valuation."

iPayment's initial public offering (IPO) of stock occurred May 12, 2003 ("iPayment Ends IPO Drought; Stock Jumps 31% in Debut," The Green Sheet, May 26, 2003, issue 03:05:02).

Pratter said the case was brought to his firm's attention by David Goldfarb, the inventor of a software solution for enrollment and fraud protection in e-commerce. According to Pratter, Goldfarb invested $500,000 in Creditcards.com, paying $8 a share for stock in the company in December 1999.

In December 2000, Goldfarb wanted out of the investment but Creditcards.com refused to return his money (he wanted the $8 a share he had paid, plus 10%), thereby breaching its contractual obligation with him, Pratter said. Goldfarb, of the Los Angeles area, did not return phone calls to The Green Sheet for this article.

In June 2001 Daily and Grimstad did a reverse stock split, according to Pratter, reducing shareholders' stock value 100 to one in what he called a "cram down." Shareholders, including Gordon, were left with 0.4% of the company instead of 40% because of the valuation Caymas assigned the stock. Stock value was reduced to $0.37 a share, and Daily and Grimstad ended up with total control (95%) of the company.

At this point, Pratter said, investment firm Auerbach & Co. approached Daily and Grimstad; Auerbach introduced Creditcards.com to Redpoint Ventures, which then made an offer to buy the company's stock for $7 a share. Daily and Grimstad and their company breached the agreement in that transaction, as well as their "fiduciary relationship with Gordon," in turning down that offer, Pratter said.

Auerbach filed a separate civil suit in Los Angeles Superior Court regarding that matter, naming iPayment and its principals as defendants.

In a statement issued August 6, 2004, iPayment said, "The Company believes that this complaint and the underlying allegations are without merit and intends to vigorously defend against them."

A spokesperson for iPayment said the company is limited in what it can say in light of the pending litigation, and in order to remain consistent with the released statement, didn't have anything to add to it.

Both sides involved question the integrity of the other and point to evidence that would seem to indicate that each has a history of disputes and shady business practices, including lawsuits, state bar association censures and filing incomplete regulatory information.

Ehrenberg's case is scheduled to be heard in April 2005, and Pratter said he fully expects it to go to trial.