Kaleil Isaza Tuzman, star of the 2001 documentary “Startup.com” that chronicled the rise and fall of his company govWorks Inc., was arrested in Colombia on Monday, charged with market manipulation and accounting fraud related to a later company he founded, KIT Digital.
The charges against Mr. Tuzman were announced on Tuesday by Manhattan U.S. Attorney Preet Bharara. KIT Digital’s former chief financial officer, Robin Smyth, was also charged with accounting fraud and was arrested in Australia. Messrs. Tuzman and Smyth are both being held pending extradition proceedings. Both were also sued by the Securities and Exchange Commission.
A call to Mr. Tuzman’s cell phone was answered by a woman identifying herself only as “Amanda,” who claimed to be his lawyer, but who declined to comment. Mr. Smyth couldn’t immediately be reached for comment.
The indictment alleges that Mr. Tuzman engaged in a scheme with an outside hedge fund to artificially the share price and trading volume of KIT Digital shares. It also alleges that both Messrs. Tuzman and Smyth falsely inflated KIT’s sales by recognizing revenue for products the company hadn’t fully delivered and by using the company’s own cash to pay off customer invoices that were uncollectible.
KIT Digital, its name derived from the initials of its founder, sought to become an online video technology powerhouse by rapidly acquiring 19 companies. It raised more than $250 million via stock sales to help fund the deals and enjoyed positive recommendations from some Wall Street analysts whose firms also sponsored those stock sales.
The Wall Street Journal first raised questions about KIT Digital in November 2011, noting a rapid increase in accounts receivable that suggested customers weren’t paying their bills. The story also noted a run-in Mr. Tuzman had with Dubai police after getting into a fight with a lawyer there.
Mr. Tuzman stepped down in March 2012 and a subsequent Wall Street Journal story noted additional troubles facing the company and quoted his successor, Barak Bar-Cohen, saying he would like to “control-alt-delete the past.” KIT Digital filed for bankruptcy in 2013.
Mr. Tuzman now runs an investment firm called KIT Capital that focuses on asset sales, growth equity and real estate. He has been seeking investors for his latest project, a resort in Cartegena that hopes to be “Colombia’s 1st 6-star hotel,” according to the project’s website. The resort has its own Instagram account, @cartagenaviceroy, and Mr. Tuzman posed for a group photo in a hard hat last week.
Mr. Tuzman recently sent an invitation to the “7th Annual Colombia Celebration” sponsored by KIT Capital, which is leading the resort project, according to an Aug. 25 email reviewed by the Journal. The 10-day event in Cartagena and Medellin in November “straddles local independent day celebrations, island trips, world-class parties and the Miss Colombia coronation,” according to the invite. “We hope you will think of KIT Capital as your Colombian ‘connection.’”
Mr. Tuzman gained fame during the tech boom and bust for being featured in Startup.com, which is considered by some to be the quintessential eye-witness account of dot-com mania. Mr. Tuzman, who is Harvard educated, left a banking job at Goldman Sachs to become CEO of GovWorks, which struggled after raising large amounts of venture capital.