The longevity of troubled tech publisher Red Herring was a mystery until one ex-employee enlightened me: Publisher Alex Vieux simply doesn't pay his bills. What a brilliant way to achieve positive cash flow! Alas, Vieux has encountered a creditor who won't be stiffed: the IRS. The agency is looking into Vieux's Herring for what may be $2 million in unpaid payroll taxes, ex-employees who have been contacted by investigators have told me. Vieux is experienced at dodging the taxman: Farley Duvall, a longtime lieutenant, told colleagues he'd fled French police seeking to seize company documents in Paris, and drove in the middle of the night to Switzerland, where he rebuilt the Herring's European operations. Now Swiss authorities are asking questions about — you guessed it — unpaid taxes. But it's the American taxman who may put Vieux behind bars.
The IRS has stepped up efforts to crack down on unpaid payroll taxes in recent years. This form of fraud hurts both employees, who may be on the hook for monies withheld from their paychecks but never sent to the government, as well as taxpayers. The IRS can press charges against not just the company but top officials as well; the corporate veil, a legal concept which protects officers and directors from the actions of a corporation, does not apply here, I'm told.
That likely explains why Red Herring reported last year that half its board members had quit. David Chao, the cofounder of VC firm Doll Capital Management, still serves on the board, according to his online biography. Is his reputation worth a continued association with the Herring? Vieux can be charming and persuasive. Perhaps he kept Chao and other board members in the dark.
If the IRS investigation concludes that the Herring didn't pay its taxes, its directors have an unpleasant choice: Confess to complicity in the fraud, or admit that they were among the many Vieux has duped. Embarrassing as it would be, I'd suggest they go with the latter. They'd have plenty of company.