According to a report in The Los Angeles Times, the now defunct Digital Entertainment Network is under investigation for possible fraud concerning the sale of hundreds of thousands of dollars worth of DEN equipment and other assets to company insiders before it filed for bankruptcy in June.
According to the Times, DEN bankruptcy trustee Todd Neilson and his attorney for the DEN case, Richard Diamond, said they are looking into the sales, which included the $90,000 purchase of computers and other assets by associates of DEN Chairman Gary Gersh.
"We are commencing our investigation now," Diamond told the Times, adding that he will examine the Santa Monica, Calif., firm's high salaries as well as the asset sales in the three weeks before the bankruptcy filing.
"Exorbitant salaries and sweetheart deals are fraudulent conveyances if not supported by adequate consideration," he observed.
DEN's bankruptcy lawyer, Ronald Leibow, told the Times that the company's executives checked Internet auction prices on similar equipment to make sure that the sales were at fair prices. "It sounded to me like it was based upon fair value," he said. "If they were paying full value, I don't think anyone could complain."