Founder Sues an Officer of Shaken Buy.com

In a bitter postscript to an Internet boom-and-bust story, Buy.com Inc. founder Scott A. Blum this week sued a key officer of the Aliso Viejo company, Murray Williams, for nearly $1 million, alleging Williams defaulted on a loan.

Williams’ attorney, Arnie Blakely of Costa Mesa, said Thursday that he will file a counterclaim contending that Blum owes Williams millions of dollars from partnerships the two had formed.

“This is just the tip of the iceberg,” Blakely said. “[Williams] was promised many things that were never delivered.”

Williams, 30, quit as a manager at the KPMG Peat Warwick accounting firm to become Buy.com’s financial vice president in early 1998. In addition to his duties at the online retailer, he also acted as Blum’s personal financial advisor, both sides said.

Their dispute is rooted in the collapse of Buy.com’s stock. Priced at $13 a share in an initial public offering a year ago, the stock quickly shot up to $27.50, then began a tumble that left it at 59 cents a share Thursday in Nasdaq trading, down 6 cents for the day.

In an interview, Williams said he and several other employees had exercised options to buy stock a year before the company’s IPO, encountering significant tax liabilities. Williams said the tax bills came as a surprise and left employees in a bind.

They couldn’t sell their stock because Buy.com was privately held before the IPO. As insiders, they were prevented from selling for six months afterward.

Blum agreed to pay their taxes, including $949,174 in Williams’ case, with the understanding that the employees would repay the money later by selling their shares of Buy.com, according to the lawsuit, filed in Orange County Superior Court. Blum is now seeking the money from Williams plus interest from last November, when the repayment deadline passed.

Blum’s suit contends Williams abused their “special relationship” by repeatedly promising “to work things out and not to worry,” delaying Blum from suing.

Williams said that by the time he was able to sell the stock, its valued had dropped so low that the proceeds no longer would cover the debt to Blum.

He said he helped “put $120 million in Scott’s pocket” by crafting deals, including a major buyout of Blum’s own Buy.com holdings by the Japanese investment firm Softbank Inc., but never received millions of dollars that Blum had promised him in return.

Blum no longer has an active role in Buy.com. He is now attempting to create a national chain of incubators to help fledgling tech companies get established.

“I’m just bewildered that he’s coming after me,” Williams said. “To this guy, this is a very small amount.”