Hella Nation - Evan Wright [105]
Warshavsky’s non-adult ventures fared poorly. The online bank went bust. The gambling sites ran into regulatory opposition. One site, Online-Surgery. com, which was Cort St. George’s brainchild, sold real-time streams of medical procedures. One early webcast showed St. George’s mother getting a face-lift. From there it moved on to gory live streams showing brain surgeries and breast augmentations.
Warshavsky would storm around the office berating employees for failing to complete projects for which there were no resources. An online store run by Clublove.com regularly took orders for items like dildos and rubber vaginas, charging credit cards but seldom shipping anything. As it turned out, IEG often didn’t have any products to ship. Typically, all the company had was a Web page to take the orders.
WITH PRINT REPORTERS ANDTVCREWS showing up nearly every week, IEG’s facilities became a backdrop for the surrealist productions that Warshavsky put on for visitors. He would lead them through the First Street headquarters before trooping across town to the Arcade, where performers stripped and masturbated in front of video cameras that sent live streams onto IEG’s websites. Warshavsky claimed that 1,400 adult-entertainment webmasters purchased IEG’s streams for their sites. The actual number, according to a sworn declaration by one of IEG’s staff accountants, was no more than sixty. On most days, the live-performance booths at the Arcade were empty. A supervisor simply replayed old videotapes, making it appear that they were live by typing banter from the supposed performer for the customers in the chat rooms. The system worked well. On some adult sites, IEG charged more than a dollar a minute for these “live” performances.
Before the media arrived, Warshavsky would phone ahead to the Arcade supervisor. She would call performers and have them rush in to fill the booths so that Warshavsky could then show off what appeared to be a dynamo of pornographic activities.
Warshavsky titillated the reporters and investors he led on tours with fabricated visions of growth, profits, new frontiers to be conquered. Worth magazine told its readers that IEG’s websites had seven hundred thousand paying members, and Time spoke of revenue of $100 million and profits of $35 million for 1999. That same Time article quoted investment analyst Gail Bronson: “So far as whether [IEG’s IPO] would be successful, you betcha. We’re talking real revenue, real earnings, real product.”
The reporters and analysts, at this point, had no way of knowing that reality distortion was a key element of Warshavsky’s business strategy. Not only were checks to vendors and employees bouncing during this period, but in sworn declarations two of the company’s four senior staff accountants would say they saw normal daily-revenue figures of about $30,000 (about $11 million per year) and “falling memberships.” The declarations indicate monthly memberships of thirty thousand, not the seven hundred thousand that Warshavsky claimed.
Warshavsky once tasked me with the job of leading three young male financial analysts on a tour of the Arcade. They represented a Chicago firm that would be underwriting IEG’s planned initial public stock offering. As we approached the Arcade entrance the analysts, in their dark suits, maintained a scrupulous formality. Their job was to scrutinize IEG’s assets and operations to assess the company’s actual value in advance of their firm underwriting the stock offering—at a potential cost to their company of $50 million.
The absurdity of escorting high-paid analysts—one who told me he had an MBA from Harvard—on a tour of a warehouse where women sprawled on dirty cushions masturbating in front of cameras was lost on me at that time.