March 31, 2010 / 12:15 AM / 8 years ago

Lender wants Sex.com bankruptcy case thrown out

NEW YORK (Reuters) - A lender which claims it is owed millions by the Sex.com domain name operator is asking a U.S. bankruptcy court to dismiss an involuntary bankruptcy case against the company, so it can resume a foreclosure auction, according to new court documents.

The New Jersey lender, DOM Partners LLC, which said it loaned more than $4 million to Escom LLC to fund the website’s operations, said in court papers on Friday that Escom shouldn’t be in bankruptcy. DOM said it would be best able to recover the debt by holding a new auction for what may be the world’s most valuable domain name.

An earlier auction was set to take place March 18 in New York, but was halted when three of Escom’s other creditors, saying they are owed more than $10 million, filed an involuntary bankruptcy proceeding against the website owner in California.

The auctioneer hired by DOM Partners had already been contacted by “scores of potential bidders” ranging from U.S. and international investors to domain name industry executives, media companies and adult entertainment companies, according to the court papers.

Escom LLC reportedly paid $14 million to acquire the Sex.com domain name in 2006 and said at the time that it planned to create a “next-generation Web interaction” experience on the site. But the court documents filed by the lender painted a picture of a company with just one employee, little income, and little ability to achieve its intentions.

“ESCOM has no working capital of its own to finance any development of the Domain Name, let alone to pay its secured creditors,” a representative for the lender said in court papers.

The lender claims Escom had defaulted on its loan in January 2009, and that it has been “denied access” to Escom’s books and records for the past year.

DOM Partners said that “nothing short of a miracle” would allow Escom to repay its creditors without a sale of the domain name, and that if the case were to be immediately dismissed, it expects enough excitement could still be generated among potential bidders for a “highly competitive bidding” process.

Mike Mann, an Internet entrepreneur who controls the three creditors that filed the involuntary bankruptcy case against Escom in March, told Reuters in an interview on Tuesday that it was actually the lenders that had prevented the website from thriving.

“The other investors interfered and blocked us, threatened us and caused us various troubles and losses. We had our hands tied, and our money stolen,” Mann said.

“These people were trying to fire sale it illegally after they did all these other things, so I couldn’t allow that to happen.”

Mann said that while he tried to help the company operate itself over the years, a claim by the lenders in the court documents that Mann’s group was actually managing Escom, was false.

Mann said he believes the site is worth about $50 million and that he had gotten involved with the website in hopes that the website would make $100 million so he could give 100 percent of the proceeds to charity.

“It’s the best domain in the world by far,” Mann said. “Sex is the most popular topic in the world. Dot-com will never go away, sex will never go away, everybody in the world knows how to spell this world ... and there’s an enormous community of people that have a special interest in this.”

A hearing is set for April 20 at the U.S. Bankruptcy Court in Woodland Hills, California, according to court papers filed on Monday.

The case is In re: Escom LLC, U.S. Bankruptcy Court, Central District of California, No. 10-13001.

Reporting by Emily Chasan; Editing by Richard Chang

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