Bloomberg — On Feb. 2, 2014, Mike Fitzsimmons, the chief executive officer and founder of a “television commerce” startup called Delivery Agent, was at MetLife Stadium in East Rutherford, New Jersey, taking in the Super Bowl and tensely emailing colleagues. Fitzsimmons, unlike the 112 million people watching on television, wasn’t able to see the game’s lavishly produced commercials, but one in particular was very much on his mind. It was for a new men’s underwear collection from the Swedish retailer H&M, designed by just-retired English soccer superstar David Beckham.
Delivery Agent’s role in the commercial was visible only to the subset of the game’s audience watching on a Samsung Electronics Co. Smart TV. The startup’s technology was supposed to turn those televisions into digital vending machines: Viewers would be able to purchase the underwear directly from their sets using the remote. A menu overlay would appear at the bottom of the screen, prompting Samsung customers to click and buy as Beckham himself, in the 30-second spot, dashed parkour-style through an industrial roofscape while wearing, and creatively shedding, his eponymous bodywear.
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It was the first real trial of the software. Delivery Agent could claim victory, Fitzsimmons had emailed his staff a few days earlier, if “we sell out within 6 minutes.” As the first half ended, however, and as Bruno Mars strutted through his halftime show, and as the Seattle Seahawks re-emerged from the locker room to resume throttling the Denver Broncos, the several hundred items set aside for the special promotion did not sell out.
What happened next, and in the days after, would trigger long-running litigation that is scheduled to find its way to trial only this summer. One of two investors suing the company settled with Fitzsimmons and the board this month, but the other maintains his allegations of fraud. Depending on whom you ask, it’s either business as usual in Silicon Valley or the Theranos of boxer briefs.
Founded in 2001, Delivery Agent started out helping entertainment companies sell goods featured in TV shows and movies, either through the startup’s website, through its clients’ or through a 1-800 number. The company also helped cable companies sell ads. These relatively unsexy activities were still its core businesses in early 2014, when Delivery Agent was preparing to go public. But it was also working to roll out ShopTV, a platform to enable in-TV retail. Other tech companies had tried this before. Success would allow Fitzsimmons’s company to present itself not just as a web merchant and middleman but as a developer of innovative software. “This is a game-changer for the advertising industry,” Fitzsimmons told the website Broadcasting + Cable. “With the upcoming launch of the t-commerce-enabled H&M Super Bowl XLVIII ad, we are collectively redefining the power and effectiveness of television advertising.”
All of this added to the pressure on Super Bowl Sunday. In his Jan. 30 email to the leadership team, Fitzsimmons compared the underwear spot to a space shuttle launch. “Need each of you to triple check each detail to ensure we go smoothly,” he wrote. Around that time, the company also developed a simple, if ethically dubious, Plan B. If the underwear didn’t sell out, Delivery Agent staff would quietly buy up whatever remained. As the minutes ticked by, it became clear that the campaign was not achieving escape velocity, at least as defined by Fitzsimmons. On many Samsung Smart TVs the overlay didn’t even appear. Fitzsimmons initiated the contingency plan: “Buy every pair,” he emailed his chief operating officer, Peter Lai.
Over the next few days, the company touted the ad as, in the words of one Fitzsimmons email, “a massive success.” The company reported to H&M and to Zenith, the retailer’s ad agency, that the inventory had sold out—without mentioning how. At the same time, as a federal judge has written in a pre-trial ruling in the case, “several members of Company’s senior management, including Lai, were busy fabricating sales and viewer engagement data.” In court filings, Fitzsimmons’s attorneys point out that neither of the investigations that would follow concluded that the CEO was himself involved in the internal data manipulation efforts.
“Buy every pair”
One of the employees who was involved, however, quickly sought out the company’s chief financial officer and general counsel to express his misgivings about what he had been told to do. Less than a week after the Super Bowl, the general counsel emailed members of the company’s board asking to discuss “a matter of fraud” related to a presentation sent to partners and prospective investors. Critically, the CFO alerted the company’s auditor, Deloitte & Touche, which said it wouldn’t continue working with the company until the matter was cleared up. What followed was a standoff that consumed the two and a half years that remained of Delivery Agent’s existence as a going concern.
When an internal inquest overseen by the company’s audit committee concluded in mid-March, Deloitte was unsatisfied and demanded an independent investigation. Without a cooperating auditor, the initial public offering receded into the increasingly distant future. Investors backed out. Correspondence between Fitzsimmons and his board, submitted as evidence in the lawsuit, has the tone of an ill-fated expedition’s last dispatches. “We barely made payroll today,” Fitzsimmons wrote. The CEO squeezed existing investors to lay out more money and scrambled to find new ones. A venture capitalist named Ossama Hassanein, overseeing a pair of funds called Rising Tide, agreed to come aboard, bringing along a Florida-based investor, John Abdo, who had made his fortune in real estate and banking. Convinced that an IPO was just around the corner, the two together would eventually invest nearly $35 million in the company.
That June, the outside investigation by the law firm Bergeson LLP concluded, recommending ethics training and a reconfigured audit committee but stopping short of advocating the firing of company leadership. Deloitte pronounced this unacceptable, and Delivery Agent’s board voted unanimously to fire its auditor and hire a new one, Grant Thornton, that did not share Deloitte’s concerns. This, however, turned out to create its own problem.
Securities law requires that any firm that tries to go public within two years of parting ways with its auditor disclose what, if any, disagreement there was. Deloitte and Delivery Agent now found themselves in a new standoff over the language of that explanation, so-called Item 304. Deloitte insisted on mentioning the details of the Super Bowl ad controversy; Delivery Agent strongly preferred not to. On Aug. 19, 2015, Hassanein and Abdo finally learned those details, after months of growing increasingly perplexed about what was holding up the IPO.
The company continued to limp along for a little over a year, with new infusions of capital from, among others, Hassanein and Abdo. In 2016, Delivery Agent unveiled a partnership with the Chinese sportswear brand Anta and the Golden State Warriors basketball star Klay Thompson. In September of that year, the company filed for bankruptcy, eventually liquidating. In early 2017, Abdo and then the Rising Tide funds sued the company’s leadership and its board members, claiming to have been been defrauded.
The defense’s stance, unsurprisingly, is that they were not. In court filings, lawyers for Fitzsimmons and the board argue that, while it might have been neighborly to inform prospective investors about the disappointing results of a single technology pilot test—and, for that matter, about the impetuous decision to temporarily misrepresent those results to the outside world—the company and its directors were not legally required to do so, at least in the judgment of its lawyers at the time. On Feb. 1, two weeks before this year’s Super Bowl, Rising Tide settled its suit, and if Abdo doesn’t do the same, the case will go to trial in August.
Regardless of which side wins, it’s safe to say the fate of Delivery Agent was not decided by a David Beckham Bodywear promotion. The world has moved on from television commerce. We’re not particularly interested in buying things off TVs anymore, not when we can just do it on our phones. This year’s Super Bowl will be, for many viewers, one of the few times all year when they willingly subject themselves to TV ads at all. Mike Fitzsimmons has moved on, too. His new startup, Crosschq, promises to use machine learning to help companies speed up the hiring process. Klay Thompson is among the investors.