Employees had a different plan. Between the layoffs and the asset auction, they apparently walked off with $35,000 worth of laptops, handheld computers, monitors and laser printers. That left some executives, venture capitalists and other unsecured creditors in a financial lurch.
"Ex-employees thought they were entitled to it," said Timothy Dimoff, head of SACS Consulting and Investigative Services. Executives at the failed start-up called the Akron, Ohio-based security company to protect the remainder of its assets--larger items such as desks and office chairs that employees did not steal--but much of the damage had already been done.
"They cleaned up," Dimoff said. "It was almost like they thought it was OK to take it."
The Cleveland case was not an isolated incident. Insurance companies, asset managers, auctioneers and security experts nationwide report an alarming rise in employee theft--particularly in the technology industry.
As dot-coms fail and tech giants lay off thousands of workers, employees frequently walk out the door with desktop computers, telephones and handheld devices--even heavy office furniture, copy machines, research devices and sophisticated computer servers.
In the case of one San Francisco-based dot-com, a plush couch and lounge chairs disappeared from the lobby, apparently taken by an ex-worker who used a swipe card to enter the building without breaking windows or picking locks.
In most cases, heisted items do not have a chance to get to their intended final destination--asset auctions. These events are considered the last chance for executives, venture capitalists and other creditors to recoup some of their investment before the company folds completely. Webvan, an online grocer that filed for bankruptcy in July, will hold an auction Oct. 1 to sell its remaining assets.
It is impossible to say exactly how much equipment employees steal from technology companies each year. But employee theft is one of the biggest threats to any small business. According to SACS, roughly 75 percent of all theft is internal; the figure may be higher for small businesses and technology companies, where the theft of a single server could cost the company tens of thousands of dollars.
"This is an active problem. We're seeing missing routers, servers, all kinds of network devices," said Ganesh Neelakantan, product manager at Ramco Systems, a New Jersey security company specializing in the information-technology industry. "In some cases, we're seeing the entire IT department's equipment getting stolen."
The new aggression management?
The most common items stolen from tech companies by employees are laptops and handheld computers that cost less than $1,500 per item, asset managers say. But they are also seeing an increase in big-ticket theft.
In July, Texas authorities arrested a former Motorola worker on charges of stealing and reselling equipment. Police said the former technical lab assistant at Motorola's Oak Hill, Texas, campus used his security clearance to steal $445,549 worth of computers and equipment, including logic-card modules and oscilloscopes. Police say the man sold the lifted equipment at the Austin-Bergstrom International Airport and on eBay, posing as the chief of a fictional tech company that was liquidating its assets.
Psychologists and others who specialize in aggression management say only a small fraction of employees fit a criminal stereotype. The rest are looking for a way to get back at their boss after a layoff, demotion or pay cut. To that extent, said John Byrnes of the Center for Aggression Management (CAM), ex-employees are exhibiting classic passive-aggressive behavior.
"The anxiety in the minds of people who are laid off is interpreted as threat," said Byrnes, who founded CAM in Winter Park, Fla. "That turns into adrenaline and puts us in the flight-or-fight syndrome...Employees across the country are feeling disenfranchised. They may have difficulty blaming themselves when they get laid off, so they direct their anguish at the company."
But employees who steal are not necessarily hurting their bosses or the company at large. They are often hurting asset-management companies, furniture leasing companies and others that loaned the failed companies their equipment.
Small tech companies often lease computers and other equipment instead of sinking cash into merchandise that will become outdated within a year or two. That means the leasing companies--not the failed dot-coms--get stuck footing the bill for stolen assets.
San Francisco-based Dominion Capital Management, the 16-year-old spinoff of Dominion Ventures, has provided asset-backed loans from $500,000 to $5 million to more than 200 communications, life sciences and information-technology companies.
Dominion Vice President Dan Monberg helps failed companies transfer their assets to auctions, then distribute the proceeds to secured creditors. Among his peers in the asset-management niche, he is known as a "workout guy": the person who works out the nasty details of a company's demise, including the sale of assets and the reimbursement of creditors.
His goal is to try to get back as much of Dominion's original investment as possible--a task he says has become increasingly tough because of employee theft. Monberg arrived recently at a failed dot-com in San Francisco with a list of assets, expecting to find 20 laptops ready for auction. Instead, he found 10; the rest had vanished.
In July, Monberg hired the former employee of a failed dot-com to move piles of stacked assets into a moving truck next to the front door. Monberg personally took inventory of the stacks the night before the move. The next morning, the ex-employee called in tears and reported that somebody had cut a hole through the wall and stolen $100,000 worth of computers.
"When the company closes down, these guys say, 'I'm just going to hold on to this desk and chair,'" Monberg said. "They say, 'I'm going to take my laptop--and screw the owners.'"
One of Monberg's responsibilities is to track down and reclaim the stolen goods. He sends threatening letters to employees suspected of theft, demanding a phone call from the worker to arrange for pickup or drop-off of the item. But he only gets return calls about half the time he sends letters. If he does not get a call back, he usually drops the case--especially if it is over a single laptop or handheld computer.
"If someone has $1,000 in assets, are we really going to spend $2,000 in court costs to get it back?" Monberg said. "They know that. They know we're not going to come into their house with a search warrant and a police officer."
Don't count on insurance
In some cases--including the $100,000 heist in July--insurance agencies will reimburse policyholders for the value of the items. But agents will usually only cough up cash in cases of clear-cut theft: The burglaries must be accompanied by broken windows, smashed locks or other evidence of forced entry.
Most insurance agents have disclaimers waiving liability for the "disappearance" of items, and they are particularly wary of stolen items as a company is preparing to sell its assets. Because of the distinction insurance agents make, some security experts refer to tech gadgets lifted by ex-employees as "assets with legs"--goods that simply walk out the door on their own, with no evidence of criminal activity.
Insurance agents also generally refuse to pay for items that are not logged with specific descriptions, serial numbers and receipts. Several years ago, when many dot-coms were in start-up mode, few hiring managers thought about electronic equipment records; they were too busy hiring hundreds of employees each month.
As they falter and begin to lay off workers, many dot-coms realize the need for inventory lists. But by then, asset supervisors say, it is too late.
"Bottom line: It's very important to know what you have as soon as you get it," said David Charyn, senior vice president of San Francisco-based Charyn Asset Management Group, which handles the asset inventory and auctions for failed or downsized companies. Charyn is trying to spearhead an education campaign in the local tech niche to promote inventory awareness. He urges companies to hire an outside firm to catalog assets in a detailed manner.
"They're not doing detailed charts with spreadsheets with valuation, serial number, purchase dates, asset tag numbers for cross-referencing and sorting," Charyn said. "The trend is that more assets end up missing. One suspicion is that the people actually doing the inventory help themselves to a lot of merchandise. It's the coyote watching the henhouse."
The theft increases come during a period of sharp downsizing and economic slowdown, which has particularly stung start-ups in the tech industry. Last month, dot-coms slashed 4,899 workers. They slashed nearly twice as many in July, according to monthly surveys by Chicago-based outplacement firm Challenger, Gray & Christmas.
Industrial psychologists say they are not surprised by the increase in theft, given the economic outlook for displaced workers. They say many ex-employees honestly believed they would become millionaires after a year or two of stock options, but the economic slowdown and stark reversal of fortunes in the tech industry killed their dream--and left them hunting for a scapegoat.
"In many people's minds, they feel they're only taking what they deserve," said Mike Aamodt, professor of industrial psychology at Radford University in Radford, Va. "They get laid off and they're worried about whether they can support their families or keep living the life they're accustomed to. They're saying, 'This is going to cost me money, so it's going to cost you money, too.' They don't even think of it as stealing, really."