Lender objects to $13m sex.com sale

Creditor accuses owner of grabbing cash for insiders

The $13m sale of the domain name sex.com has been thrown into doubt after one of its bankrupt owner's creditors made an official objection.

Nuthin' But Net (NBN) LLC filed a motion in a California bankruptcy court yesterday, claiming the funds from the sale will be unfairly distributed to "insiders" at the expense of money it is owed.

As The Register reported last week, Escom LLC has signed a deal with a mysterious offshore company to offload sex.com for a cool $13m, making it one of the most expensive domain sales ever.

The court is due to decide today whether to approve the transaction with buyer Clover Holdings Ltd.

In its objection, NBN said Escom owes it over $2m, resulting from a 2006 loan of $1.5m, and alleges that the sale as it is currently structured has been rigged to unfairly benefit Escom's owners.

NBN said in its motion: "The controlling insiders have announced that they intend to sell the assets [sex.com], pay themselves all of the proceeds, and dismiss the case before other creditors can be paid."

"This debtor [Escom] intends to pay its controlling equity holders and leave all other creditors in the dust," it added.

NBN said it does not object to the deal with Clover Holdings per se, but wants the court to deposit part of the proceeds into an escrow account until the dispute has been resolved.

The company claims that two of Escom's other creditors, Washington Technology Partners and iEntertainment, are both controlled by Escom "insider" Mike Mann.

These two companies, among others, will get a payout when the sale of sex.com is closed.

But NBN's objection goes on to accuse Mann of operating a complex financial "shell game" with iEntertainment, designed to allow him to take his share of the sex.com sale and leave NBN unpaid.

NBN wants iEntertainment's payout, based on a financial note, to be disallowed, and for payments to some other creditors to be reduced.

In a response filed with the court today, Escom's lawyers complained about the eleventh-hour objection and said: "The documentary evidence will establish, however, that NBN expressly agreed to the iEntertainment note and that NBN’s belated objection is specious."

The court is due to convene to make its decision later today. ®