Dot.com calls in Fraud Squad

The e-district website carries nothing but a statement.

The UK entertainment website e-district.net has notified the Fraud Squad after an investigation commissioned by the company's board found what it says is evidence of false revenue claims.

This quarter rounds off a year of explosive growth in which our registered user base has more than doubled and our monthly traffic has increased by over 360%

What e-district.net's fourth quarter trading statement said

Both documents and electronic records were allegedly forged to back up claims that e-district.net was making money when in fact its revenues were "negligible", according to a preliminary report into the affair.

The false revenue claims created the impression that the company had earned about £1m between November 1999 and February 2001.

Money was paid into e-district.net's bank accounts and claims were made that this was revenue from advertising sales, the preliminary report found

Painting a rosy picture

But much of the money was received from bank accounts linked to the company's former chief executive Steven Laitman, instead of from advertising sales agencies.

The number of registered users and page impressions were also allegedly exaggerated; the report says there was evidence of collusion within the firm to sustain the pretence that things were going swimmingly when they were not.

Advertising revenue and page hits statistics play a vital role in measuring a dot.com's value.

Those which can show that their users spend a long time viewing material on their sites will be able to charge more from advertisers.

A rise in either advertising revenue or in page hits would normally push up a dot.com's share price.

Sacked executive

Mr Laitman, who was sacked last month - a week after he was suspended over the affair, owns 44% of the e-district shares, a company spokesman told BBC News Online.

Advertising revenue and page hits statistics play a vital role in measuring a dot.com's value.

Trading in e-district's shares was suspended at 107.5p on 19 February.

Mr Laitman's funds have been frozen and e-district has sued him for damages, the spokesman said.

A writ has been issued accusing him of fraudulent misrepresentation, breach of judiciary duty and breach of contract, he said.

Mr Laitman has reportedly said through his solicitors that the action would be contested.

Two other senior managers have also been suspended. One of them has since resigned.

Controversial statements

Among e-district.net's claims that were investigated was the company's fourth quarter trading statement, issued in January.

It provides a precise account of the number of registered and active users, the total number of page impressions and other information.

"This quarter rounds off a year of explosive growth in which our registered user base has more than doubled and our monthly traffic has increased by over 360%," claimed Mr Laitman in the statement.

The investigators found that page impressions averaged 50 million per month between November 2000 and February 2001.

However, they also found a sudden fall from 150 million impressions in May 2000 to less than 9 million in June.

As yet, they cannot explain why this happened.

E-district said it still has £12m cash, including investment income, which is plenty to cover its cash-burn rate of £200,000 per month.