Industry Leaders Feel for Vin Gupta

Jul 29, 2008 12:03 AM  By

Vin Gupta may have some shareholders angry at him. But list industry sources seem to have sympathy for the fallen InfoGroup chairman.

The worst they are willing to say is that he may have lost sight of the greater level of scrutiny required in a public company.

“When you decide to go public, that’s when you lose some of the rights and privileges of being a private company,” said John Papalia, CEO of list firm Statlistics.

As part of a sweeping effort to staunch criticism of spending at InfoGroup, Gupta was relieved last week of his position as chairman of the board at the company formerly called InfoUSA. However, Gupta, who holds 40% of InfoGroup’s stock, will keep his job as CEO of the list-and-database giant.

InfoGroup is being sued by shareholders who allege the company misspent millions of dollars. As a result, the Securities and Exchange Commission and an internal board committee have been investigating company spending.

Gupta, who agreed in an 8-K filing to pay his company back $9 million over the next five years, is still subject to the lawsuit and to a probe by the SEC.

InfoGROUP, the parent company of list firms including Millard Group, Direct Media, Edith Roman, and Walter Karl, went public in 1992.

John Lenser, president of catalog consultancy Lenser said he knows what it’s like to start a business and then have it grow with other people’s money.

Lenser and his wife Marcia launched San Francisco Music Box in 1978, and the Lenser catalog consultancy in 1994. In both cases, as he began adding other people’s money to the company accounts, he understood it was no longer just his cash to play with.

“In any position where someone owns a private company, and it either goes public or you add a partner, a change of behavior has to go with that,” Lenser said. “It’s the fiduciary responsibility to the shareholders and stockholders.”

A lawsuit filed last year by Cardinal Value Equity Partners and two Dolphin Partnership investment funds against Gupta accused him of improperly using company money to pay for the use of a skybox at the University of Nebraska’s Memorial Stadium, a yacht, jets, cars, and condos in Hawaii and California.

Gupta has said these were legitimate business expenses, such as for entertaining clients.

A lawsuit filed by company shareholders in 2006 claimed that Gupta received more that $3 million in contracts from former President Bill Clinton to provide consulting services, and had spent close to $1 million to fly former first lady and Democratic candidate for president Hillary Clinton on personal and business trips.

Will this flap have a negative impact on the list industry? Maybe.

“In this state of the economy, no one likes to see anything negative,” Papalia said. “The environment and do-not-mail issues and everything else seems to be going against us. This puts more fuel in the fire.”

Editor’s Note: An earlier version of this article erroneously listed MeritDirect as one of the list firms owned by InfoGroup. Below, MeritDirect CEO Ralph Drybrough clarifies the matter.

Letter to the Editor: MeritDirect Not Part of InfoGroup

In response to your July 28 Lists and Data Strategies article “Industry Leaders Feel for Vin Gupta,” which inaccurately stated that InfoGroup is the parent company to MeritDirect, here is a recap of the facts regarding MeritDirect:

• MeritDirect is an independent enterprise wholly owned by eleven partners, each of whom is active in the day-to-day operation of the business. There are no outside shareholders or investors.

• MeritDirect was formed in January 2000 by 32 associates who left Direct Media and Lake Group. Today, MeritDirect employs 115 associates operating from our headquarters in White Plains, NY, and from branch offices in Chicago, Cleveland, Hilton Head, Atlanta and San Francisco.

• MeritDirect has received numerous inquiries from InfoGroup and other firms seeking to acquire us. Our answer has always been no.

• MeritDirect was founded on the commitment that we would operate as a self-perpetuating partnership. True to this vision, we have embarked upon a 10-year share redemption plan to assure the orderly transition of our ownership from older to younger shareholders.

• MeritDirect has always held as a core value the need to maintain objective list and database services counsel. As an independent enterprise, we are uniquely positioned to provide trusted advisor counsel, free of any pressure to sell house-brand products.

MeritDirect’s differentiation in the B2B marketplace as the only independent list and database services provider has been essential to our success. Many clients and prospects seek this differentiation, and your article damages this understanding of us in the B2B service marketplace.

In fact, since your report was broadcast, we have received numerous e-mails and phone calls from clients expressing surprise and alarm that we had sold out to InfoGroup. And the viral nature of your postings means the reach of this inaccurate reporting will be far and wide.

Ralph Drybrough
CEO, MeritDirect