Trouble Follows Tech Firm's Fast Start -- Government Probing Microworkz Practices

Not long ago, Rick Latman and his upstart computer company, Microworkz.com, were riding high.

A charismatic figure who seemed to come out of nowhere, Latman was showing up in all the right places, saying all the right things.

In March, Microworkz introduced a personal computer that sold for less than $500 and received a nice splash of publicity.

National stories highlighted the company - originally based in Seattle but since moved to Lynnwood - and Latman made television appearances on Fox and CNBC. Later, there was talk of a possible deal with America Online and a relationship with AT&T.

Things have since gone far south.

Microworkz is the subject of at least two inquiries into its treatment of consumers. Both the Washington state attorney general and the Federal Trade Commission (FTC) are investigating, with an eye on whether consumers received computers within 30 days of when they were ordered and whether refunds were paid in a timely manner.

The Attorney General's Office has logged more than 60 consumer complaints against Microworkz, and a spokeswoman for the Better Business Bureau of Oregon and Western Washington said her agency has logged a like amount, though some of the complaints could be redundant. The FTC wouldn't say how many complaints it has received.

Latman and Lance Rosen, the company's interim chief operating officer, acknowledge the FTC and attorney general have asked for company records.

The regulatory bodies have requested detailed business records, including information on sales, managerial responsibilities, advertisements, refunds, credit slips and notices sent to consumers regarding shipping delays.

The investigation has been pending at least since June, and has been slowed partly because the company has had trouble producing records.

To top things off, Microworkz recently may have become a victim of its own bookkeeping practices. Lynnwood detectives are investigating possible employee theft.

The losses are not substantial enough to account for the company's problems, but some attribute them in part to lack of internal controls.

In the product arena, the company faces serious problems, too. Production of a new computer called the iToaster, which some saw as the company's salvation, has stalled because of need for additional development, lack of money and unresolved distribution issues, according to sources inside and outside the company. Today, Latman disputed that the iToaster is stalled at all.

Like many small companies in the technology industry, Microworkz had large ambitions, in its case to make low-priced computers and provide Internet service. But its reach may have exceeded its grasp.

Last month, in what amounted to a last-ditch effort to save the company, Latman announced that effective Nov. 15, he would step down as CEO and turn power over to Rosen. An attorney, Rosen most recently worked for an independent film company that is part of Microsoft co-founder Paul Allen's financial empire.

In moving aside, Latman conceded his company, formed in 1998 according to state records, lacked "seasoned management."

Others tell different story

But interviews with nearly a dozen former Microworkz employees - several of them highly placed - together with a review of public records and a series of interviews with Latman, place him at the center of Microworkz's problems. In addition, Latman's accounts of events often are at odds with those of others.

Among other things:

-- In an interview in June, Latman pledged that, to avoid problems that previously hurt customers, the company would not charge iToaster customers until the units were shipped. But customers have produced records showing they were charged for iToasters they never received.

In an Aug. 24 letter to Microworkz, Ron Meshew of Rocky Mount, N.C., recounted his story, which started with his June 22 order of three iToasters. Meshew noted that his records showed Microworkz had received his June 23 check for $704.85 and cashed it June 29.

"I have been the owner of a business and know the rigors of cash-flow problems," Meshew wrote. "I feel that I have been more than generous with my patience. Secondly, your personnel that I have talked to were very courteous, and genuine, in their handling of my attempts to get this matter resolved. Unfortunately, it has been to no avail."

Last week, Latman challenged the notion that any iToaster customers had been charged for units they had not received. He was given Meshew's name and that of another similarly aggrieved customer. Latman said he would check into the cases and get back. He has not.

Today, Latman said Meshew "sent a check in here unsolicited and very early. It is not our policy to allow negotiable instruments to just lie around."

-- Last fall, Latman partnered with a group of Seattle businessmen to form a venture called Dreamhaus. Latman maintains he pulled out as soon as he learned the enterprise was going to include an adult-oriented Web site. One of the partners is Frank Colacurcio Jr., a convicted felon who, along with others, has run a chain of area strip clubs for years.

The former partners say the adult site was Latman's idea. (They ended up suing him, though a settlement is in the works.) Kurt Lieber, a former Dreamhaus employee who later worked for Latman at Microworkz, says that when Latman first hired him, he asked if "I had any problem working with adult content." Latman dismisses the allegation as "ridiculous" and characterized Lieber as a disgruntled ex-employee.

-- After a barrage of negative publicity in June that included references to more than $277,000 in liens filed against him by the Internal Revenue Service and the state of California, Latman appeared to open the door to his past. In a letter to customers and friends posted on the Microworkz Web site, Latman wrote:

"Five years ago, my family had a small business selling wedding gowns. It failed and we got hurt. . . . At that time, we had two routes we could have taken; file bankruptcy or stick it out and pay people back. . . . We decided to pay everyone back."

But in a recent interview, Latman said he would not discuss his past because it was "not applicable" to Microworkz.

Records show the bridal-gown business, Romantique Bridal, did file for bankruptcy in Los Angeles. Also, small-claims-court records show default judgments won against the business by numerous individuals totaling thousands of dollars. The plaintiffs sued Latman and his wife, Bettina Latman, the co-owner.

One of those who won, but has not collected, is Morton Wexler, a retired radiologist living in a Los Angeles suburb. In summer 1995, he put a $1,500 deposit on a dress for his daughter's Feb. 24, 1996, wedding.

"I called (Latman) 10 or 25 times," Wexler recalled. "He said he'd `never had a bride walk down the aisle without a wedding gown.' . . . That was one of his cliches. . . . We called him up the day of the wedding. He assured us. The truth is, he never delivered the dress."

Latman said he has no recollection of Wexler.

Heidi Kurtz, the court-appointed trustee who handled the Romantique bankruptcy filing, yesterday said she distinctly recalls the case, though she has handled 5,000 or 6,000 bankruptcies since. The case, she said, was dismissed because Latman didn't show up for a scheduled hearing.

As a consequence, Kurtz said, it's as if the voluntary bankruptcy was never filed, giving creditors the option to pursue the business. "It really was outrageous," Kurtz recalled, adding that even though the file has been destroyed, she's fairly confident she wrote a letter of referral to the local U.S. attorney to investigate the case for "potential fraud and abuse."

Apparently, nothing came of it. Kurtz noted that federal prosecutors are barred from disclosing the existence of such referral letters, a point confirmed by the U.S. Attorney's Office in Seattle.

-- The New York Times last March referred to Latman's prior position as a bond trader at Merrill Lynch. Latman now admits he never held such a job and can't explain how the information got into the story. He complimented the writer, Laurie Flynn, as a "great reporter."

"I don't think she got it from me," Latman said, adding that "perhaps one of our (Microworkz) press people gave it to her." He indicated he did not try to correct the error.

Flynn said today she is certain she got the reference to the bond-trader job directly from Latman.

"My period in the limelight has hurt this company more than it's helped," Latman said.

Amount of debts disputed

He declined to say how much Microworkz owes to commercial creditors for products and services, and to consumers seeking refunds for computers never received or not wanted. Two creditors - PC World Magazine and Rainier, a Massachusetts-based public-relations company - each say Microworkz's debt with each is in the "six figures."

Latman said he was unaware of "any problem" with PC World. But Roy Kops, Western ad director for the magazine's print edition, said recently, "We've tried to contact them over the last couple months, and we've received no responses."

Of the debt to Rainier, Latman said only that there's a billing dispute.

Rainier president Steve Schuster maintains its billing practices are state-of-the-art. "We felt we'd done a great job in all good faith, and with full authorization," he said. "And then the money just wasn't coming."

Latman, 33, grew up in Southern California and lives in Lake Forest Park with his wife and children. He is guarded about his past but acknowledges he is the grandson of Leon Schwab, whose famous Sunset Boulevard pharmacy was frequented by movie stars such as Charlie Chaplin and Marilyn Monroe.

Latman's father is Barry Latman, a former Major League Baseball pitcher who was picked for the 1961 All-Star Game when he was with the Cleveland Indians.

Rick Latman apparently moved to this area in the mid-'90s and opened a shop in Lake City last fall.

Based on records and interviews with former associates, it appears Latman made a transition to computer-hardware sales after he developed Retail Trac, a program to help bridal businesses track sales and orders.

Asked how he learned about computers, Latman said he was "self-taught."

Seattle Times researcher Vince Kueter assisted in the reporting of this story.

-------------------- Microworkz time line --------------------

November 1998: Microworkz Computer Corp. files papers with the secretary of state.

March 1999: Microworkz introduces Webzter PC, a Windows-based computer selling for $299.

June 1999: Microworkz is the subject of news stories regarding consumer complaints. The company announces the launch of iToaster, a $199 Internet device, which it says will start shipping July 15. America Online is rumored to be interested in an iToaster specially made for its customers.

July 1999: EarthLink, a Pasadena, Calif.-based Internet access supplier, sues Microworkz, alleging breach of contract over payment for Internet access bundled with Webzter computers. Microworkz says it will file a counterclaim.

August 1999: Microworkz announces a deal whereby it will pay AT&T $300 million over three years for Internet access provided free of charge with iToasters.