Hydra Network Financial and Legal Nightmare
This post is going to be quite long, and might possibly be a little difficult to follow as it involves many parties, many lawsuits, and many sources of information. The legal documents involved span hundreds of pages and so doing a summary like this is difficult, especially because Nickycakes is not a lawyer and has no real legal experience when it comes to civil suits. Nicky is going to do his best to keep everything factual and based on the court documents provided, but if he misses anything, feel free to contact via comments or email for corrections to be made.
First off, Nicky has had very little personal interaction with Hydra. He ran a couple hundred bucks of leads to a campaign with them a few years ago for which he was paid in full, and after that has had no real dealings other than picking up a free hat from their booth at a show and some back-and-forth on some forums with one of their execs.
Let’s get started with our little timeline of events:
At the end of 2008 3 of the 4 partners running HydraNetwork, Doug Walker and two sons Adam and Jason were fired by the board of directors, leaving the current CEO, Zac Brandenberg as the sole partner remaining, although the Walkers still held an almost 40% share in the company.
In May, 2009, the walkers started a network called W4, which many of you have probably heard of. Hydra then sued them for violating the noncompete agreements they had signed while with Hydra.
The Walkers then sued Hydra for firing them, since they had a fairly large stake in the company, claiming that their firing resulted in a huge decrease in value of a company they owned a part of. One quote from that suit:
“Before the defendants engaged in their misconduct, Hydra was projected to generate some $150 million in revenue and substantial profits in 2009. Today, Hydra will be lucky to generate revenue of half that amount and avoid a loss.”
The Walkers believed that Brandenberg had been planning on getting rid of them for months for personal gain of authority in the company as well as equity in Hydra.
Alright, blah blah, both sides arguing over a bad breakup. You can read a post from August 09 detailing most of this from LA Business Journal. A little drama, some lawsuits, and a forecast by the Walkers of huge revenue decrease. Interesting, but there was more drama to come.
Jason Walker allegedly fired off an email to Hydra employees and investors that said some not so nice things about Zac and new manager Louis Amoroso. So, big shocker, Zac and Louis sue for $1m plus punitive damages for defamation. Quote:
“On April 3, 2009, after receiving notice of his removal as a manager of Hydra, Jason sent an e-mail to Kanye Anderson employees, Krisnan Ramaswami (Hydra board member), Jack Isaacs (Hydra board member), Neil Malik and to Ed Roberto, the interim President of Hydra, claiming expressly and/or inferentially that Amoroso was a felon, a frequenter of hookers, gambling and liquor and that Brandenberg: (1) consorts with felons; (2) Along with Amoroso, committed acts of dishonesty and fraud in connection with his previous employment, including wrongfully starting a competing business while still employed and converting his prior employer’s assets and, ultimately, causing both companies to go “belly up;” (3) was incompetent and incapable of performing the duties for which he was hired; and (4) is failing to perform his duties for Hydra.”
The lawsuit lists several other emails sent by Jason and Adam Walker claiming that Zac was trying to steal their share of the business.
If anyone has a copy of any of the mentioned emails, Nicky would love to have those as well, so please email them on in.
Those cases will apparently not go to trial for another several months, so each side has the potential to lose quite a bit of money if they lose their respective cases.
Hydra Money Related Problems
Fast forward to late 2009. The FTC has long since started cracking down on the most popular rebill offers in the industry, which had, for the past year or so, been making up a huge chunk of revenue for any network. As the lawsuits started coming, merchant accounts for the advertisers started getting frozen, leading to non-payments to networks, etc. This hurt everyone right down the line at pretty much every network out there. That’s no secret.
Well, on November 20, 2009, Zac Brandenberg filed a suit against Hydra LLC, which he was the CEO of. The WHY is a little bit complicated, but Nickycakes will try to summarize (keep in mind, Nicky is no lawyer, and there were over 250 pages of documents for this case that he had to go through):
- Hydra, just like many other networks, starts to get into money problems due to changes in the industry.
- Hydra’s main investor company (KAPI), which also had members on the board of directors, and was keeping the company afloat if it couldn’t afford to pay affiliates, decided it was no longer going to continue putting money into the company.
- The board of directors voted to let Zac Brandenberg decide if they wanted to file for Bankruptcy or Receivership (which is like bankruptcy, except the company is handed over to an impartial 3rd party to try and restructure or sell or file for bankruptcy if necessary).
- Zac looks for investors to try to get him out of this mess, and finds some, but they don’t want to invest if KAPI is still involved since they would get priority on money being paid back, and they’re also wary of all the lawsuits going on with the Walkers, because any one of those could easily sink the company in its fragile financial state.
- Zac goes to KAPI to see what it would take to remove their priority in being paid back so they can get some new investments, and an agreement is reached, but KAPI keeps demanding more and more money until finally they just say they want $2mil, which Hydra definitely doesn’t have, in order to go away, and effectively blocks any new investment money from coming in.
- Around this time, Wells Fargo informs Hydra that they are in default on their $10 mil credit line and need to start paying up.
- Zac files this lawsuit to go into Receivership so the company may be restructured which (nickycakes thinks) would get rid of KAPI and allow new money to be invested.
In these 250ish pages of court documents, there are some really ominous quotes by Zac (the CEO of Hydra) about the financial state of the company as of November 20th, 2009. Here are a few:
“Hydra does not have sufficient working capital. I anticipate that, in the next few business days, Hydra will not have sufficient funds to timely pay all of its employees and creditors, including its affiliates. Because of the reliance of Hydra on its affiliates, if timely payment cannot be made Hydra will begin rapidly to lose going concern value, as Hydra’s affiliates have many options that compete with Hydra in this commoditized space. These affiliates are highly motivated by consistend payments, and can be expected to react very negatively to any delay. Additionally, due to the nature of this business, the affiliates have the ability to, and would be expected to post negative messages about Hydra on internet message boards.”
Another very telling quote:
“Based upon the information Hydra provided to me, it appears that next week Hydra will collect $500,000 in accounts receivable, but will need to pay affiliates in the approximate sum of $601,000. … Based upon Hydra’s representations and the information provided to me, I agree that these expenses must be paid next week in order to keep the business operational. “
“By November 20, 2009, Hydra will not have sufficient funds to timely pay all of its creditors. Due to the reliance of Hydra on its affiliate subcontractors, if timely payment cannot be made, Hydra will rapidly lose its going concern value.”
So, the result? Well, again, Nickycakes is no lawyer, but it looks like on Nov 20th, a judge ordered that Hydra should go into Receivership and in early December one was appointed.
Now here’s where things start getting fun. Less than two weeks later, a thread was started on Wickedfire forums asking about the fate of Hydra’s bonus program being cut without notice. Mason Wiley, VP of Marketing replied saying that the bonus and referral programs were cut because they were doing nothing to bring more revenue to the company.
Having a unique ability to smell BS from a mile away, Nickycakes questioned the motivation behind cutting the programs, noting that there had been rumors of Hydra going bankrupt recently.
Mason replied to the bankruptcy rumor:
we are NOT going bankrupt. You heard wrong dude.
Why the need for a screenshot? Well, the thread continued with some back-and-forth between Nickycakes and other members questioning Wiley about the current financial state of Hydra. He replied that, while money had been tight in the past just like other networks, they were currently doing well. HOWEVER, these posts have mysteriously disappeared (most likely removed by Wickedfire admins after being petitioned by Hydra, but those facts may or may not come out at a later date).
Even with the majority of the posts removed from the thread, the one that does remain in which Mason claims the company is not going bankrupt is rather telling. Just weeks after the CEO filed court documents saying they probably couldn’t last 1 more week in their current financial situation, and with the company now in Receivership, which VERY often results in Bankruptcy, he is claiming that they are definitely NOT (and he was quite a condescending dick about it as well).
Since this pic was deleted from the Wickedfire thread, and since it is so damn relevant, please enjoy it here:
If you are an affiliate currently working with Hydra, please read the court documents posted and draw your own conclusions. The reason this was posted was not to drag Hydra’s name through the mud, but to bring to light information that could affect any affiliate running traffic with the network. When you’re working for yourself and a network goes under and can’t pay you, that may mean you can’t feed your family. A network trying to hide extremely significant financial issues from people who rely on them so heavily doesn’t sit right with the Cakes.
Keep it real.
UPDATE: After accusing Nickycakes of being biased for not reporting on the conclusion of the case, Mason Wiley, VP of Marketing at Hydra forwarded a 6 page document that shows the authorization the court gave for Hydra to be sold to “Marlboro Investment Group, LLC.” Wiley claims that this is the “conclusion” to the issue, but in reality it answers almost no real questions in this case. In fact, judging by the comments left since this article was posted, this just opens a whole new can of worms. Anyway, you can read the court filing for yourself, although it really doesn’t say much and certainly does not resolve the issues at hand: COURT DOC