Today, for the first time, The Kernel reveals the full extent of the shocking allegations made against disgraced SpinVox chief executive Christina Domecq during her disastrous tenure at the company.
Remember SpinVox, the voice-to-text technology company with no technology that skidded to a horrendous conclusion for investors and employees alike? The Kernel is publishing full details today, for the first time, of the allegations made against Christina Domecq, chief executive of SpinVox.
The allegations appear in an anonymous letter distributed to shareholders in 2009, as the company was imploding, which has been alluded to previously elsewhere, but whose full contents have never before been published.
The letter details outrageous spending by Domecq on weddings, racing yachts and lavish property rentals, all of which were charged to the company. Much of the expenditure is revealed to have occurred at a time when the business was struggling to make payroll and taking out emergency loans to keep itself afloat.
Ariadne Capital boss Julie Meyer, who owned shares in the company, described herself at the time as a “total fan” of Domecq’s, writing: “I love her impatience, her warmth and generosity, her sense of humour [she so totally doesn't take her self too seriously], her ferociously hard work ethic, her high expectations of herself first, and of others as well, her search for excellence, and her driiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiive” [sic].
Meyer described SpinVox as “a turbo-charged, over-the-top success story of which the UK should be enormously proud”.
But when the company was flogged in disgrace to US rival Nuance for a knock-down price of $64 million – after taking over $200 million in investment – Ms Domecq, scion of a sherry dynasty, was forced to repay £125,000 in “expenses”.
And, as the BBC noted at the time: “The people who had poured in over £100m to a company which claimed that it had world-beating technology ended up with just £600. No, not £600 each – that was spread among the owners of 5.3 million ordinary shares and 1.9 million A shares.”
Investors included Goldman Sachs and Carphone Warehouse. Unusually for a technology company, SpinVox did not take venture capital funding, instead going straight to so-called “dumb money” for growth equity. Commentators now speculate that this was because the company would never have made it through the due diligence checks performed by technology-focused VCs.
Domecq herself has now fled the UK, settling in New Zealand and restyling herself as a “business mentor”. New Zealand is known as an attractive destination for public figures wishing to “do a geographic” after unflattering press coverage.
The release today of full details of her alleged financial mismanagement at SpinVox will come as a blow to Domecq as she attempts to paper over her past by moving to the other side of the world and relaunching herself as an “expert consultant”.
Phantom revenues and false accounting
The letter to shareholders details a number of allegations of “phantom revenues” and false accounting by Domecq and her intimates within the business. By December 2008, the letter alleges, “close to £8m of revenues have been booked which either need to be apportioned over a much longer term, or more importantly, simply do not exist”.
1) – £2.5m was booked for O2, Bell Canada and Google. As at end December 2008, no contracts have been signed with any of these potential customers. In fact, commercial negotiations with O2 have broken down completely.
2) £2.5m was booked for Vodafone Spain, in relation to a future Voicemail-to-Text deployment. No such agreement has yet been signed with Vodafone Spain, neither for the deployment of the service, nor for the commercial terms allowing for such a large upfront fee.
3) – £3m was booked for TISA. Although a contract has been signed, minimal set-up work has been done to date, meaning that none of the upfront fees should have been recognised in December.
“The intent behind such tactics,” writes the author of the letter, “is to present a falsely positive picture of the company’s performance to existing shareholders to keep them onside and deflect criticism of the Founders and Board, and to attract new investment on the basis of a dynamically growing company.
“It is hoped that by having delayed the audit of the 2008 financials that the necessary fundraising and/or company sale will be effected before the misstatements are uncovered by the external auditors.”
These “phantom” revenues represented nearly 50 per cent of the total revenues SpinVox recorded in 2008.
The letter further alleges that SpinVox “offered operators in some cases £1 of ‘marketing coverage’ for every £1 of revenue generated. The customers have not been required to undertake any kind of marketing activity in order to receive this payment, as it is payable for signing a customer.
“This has been a pure revenue inflation tactic,” says the letter, “with many discussions in the Commercial team as to how to create contracts which would obscure the practice.”
“There has been little commercial benefit to SpinVox of such deals,” the letter reads.
The letter sets out in detail how the company misled customers and shareholders about the efficacy of its speech-to-text software. ”The automation rates touted by the company are misleading,” says the letter.
“The rate cited is a composite of the best automation rate (per automation type) achieved to date in any language added to the word automation rate in a sentence [...] i.e., if US English has the best automatic hang-up detection rate and Spanish has the best Quality of Service detection rate these are added together, and then summed with whichever language has the best word automation rate.
“However,” it continues, “word automation is meaningless as the vast majority of a message must still be manually translated by an agent.
“While the company therefore reports to investors that it is achieving full automation rates of near 70 per cent, it is actually only achieving full automation rates of circa 10 per cent… and even these are achieved due to the ‘dumping’ of long messages during peak time, the detection of hang-ups prior to them being sent to an agent, or to messages being longer than SpinVox is committed to converting.”
The letter shows how SpinVox’s margins were misrepresented too. “The cost of sales is deliberately understated by classifying substantial portions (in many months the majority) of [...] cost[s] as an operating cost below gross margin,” the letter says.
“Without such distortions SpinVox would be correctly showing a negative gross margin, accurately reflecting the fact that it loses money on each conversion.”
The letter gives the example of an audio message of 20 second length, which would take one of SpinVox’s human agents 160 seconds to prepare for transmission to the recipient. Cost of human agent time was charged at £3.00 per hour, yielding a cost per message, assuming the entire message had to be translated by a human, of 13.3p – far more than the company could possibly hope to realise.
But even this example was based on a peak operating efficiency of 100 per cent “utilisation” of human agents. Average “utilisation” was barely 50 per cent during 2008 and was unlikely ever to exceed 85 per cent, according to internal SpinVox documents from the time – meaning that the actual cost of transcribing messages is likely to have been far more than 13.3p.
“SpinVox charges the 50% of unutilised agent time to operating expenditures rather than cost of sales,” says the letter, “masking the true impact of low message automation.”
The letter also details how chronic under-investment in SpinVox’s system capacity was leading to bottlenecks in servicing customers.
The cash, we reveal today, was being spent in outrageous ways elsewhere by Christina Domecq while the company and its customers suffered.
Bonuses and headcount
“In its 5 years of existence,” writes the author of the letter, “[SpinVox] has not met a single quarter’s revenue, profit or cash flow target. As a result, the company is desperately short of cash having worked through the £50m raised in March 2008 in less than a year.
“Yet, the Senior Management Team have continued to receive significant bonuses, totalling £160k at the end of Q3 (including an additional £40k for the CEO over and above her £35k fixed quarterly bonus), with Christina Domecq and [redacted] also taking £60k and £20k bonuses, respectively, a month early in December, despite there being no money to pay key suppliers at the time.”
The letter details two salesmen who received new cars, including a brand new Aston Martin, despite not making a single sale in 2008. They are named as Michael Wheeler Wyatt and Simon Crowfoot.
“One sales director received a generous bonus despite failing to achieve even 1/10 of expected 2008 sales,” reads the letter. The Kernel understands that several of the individuals mentioned above were referred to as “intimates” of Ms Domecq’s by other SpinVox employees at the time.
Domecq seemed incapable of keeping control of the headcount at her company. “A down-sizing programme was conducted in Jan/Feb 2008,” the letter says, “in order to ensure the company grew its numbers in more reasonable alignment with its projected business growth. Circa 90 staff were let go at a cost of approximately £750k.
“By end 2008, a further 39 staff left the company, bringing total severance costs to over £1.3m. Concurrently, 164 staff were recruited, with recruitment costs running at between £250k and £300k a month – i.e. circa 40-45% of revenues.
“The average lifespan of a SpinVox employee is just 10 months,” writes the author. “As such these redundancy and recruitment costs are likely to continue in the future.”
A little off the top
Among the most shocking of the allegations the letter makes are those related to Christina Domecq’s personal financial affairs and the profit she made personally from company transactions. “Christina Domecq has profited personally on two separate occasions at the expense of her shareholders,” it says.
“In July 2007, she effected a transfer of shares from one shareholder, Carphone Warehouse, to other shareholders such as Martin Hughes, ABN Amro and Gartmore. The transfer was made through her personal offshore trust, ostensibly to avoid money laundering regulations, but in the process she skimmed £877,000 out of the transaction by acquiring the shares for £21 each and selling them on at £24.
“In April 2008, a similar share redistribution occurred, from a number of individual shareholders to ABN Amro and Goldman Sachs. On this occasion while she was prevented from charging a mark-up on the shares by the then CFO, she did charge a retrospective handling fee of over £100k.”
“In addition, the letter says, “on both of the last two rounds of funding – Tisbury Capital in July 2007 and Goldman Sachs in March 2008, Christina Domecq has – following finalisation of terms but before the incoming investors enjoy any influence – effected generous awards of stock options to herself, her co-founder and select non-executive directors, directly diluting existing shareholders and the incoming ones who had made an investment decision predicated upon the fully diluted share capital represented by Christina.”
The final section of the letter lists the most damning and outrageous accusations levelled against Domecq. It alleges that she charged her tropical island wedding to the company, purchased an X40 racing yacht with €457,700 of company funds and insisted that the company pay for her two homes.
“A charity, ‘STORY’, has been created which has committed much needed SpinVox resources to other ventures,” says the letter. “Notably an X40 racing yacht was acquired for €457,700 for the CEO to race across the Atlantic in order to raise the charity’s profile.
“This has now been delayed, with instructions given to the SpinVox marketing department to charter the yacht out until it can be raced next autumn. However, the yacht will no longer be ocean-worthy at this time, proving valueless to STORY as well as to SpinVox.
The letter makes clear that such lavish spending had a direct impact on the functioning of the business: “The main concern,” it says, “is that important SpinVox activities are now being deferred as funds are low. These activities (such as replacing old hardware, updating service and maintenance contracts, augmenting and securitising system capacity) would have been fundable if not for the diversion of shareholder funds to non-SpinVox related activities.”
The letter makes reference to Domecq’s “entourage”, “boyfriends” and her brothers, who were gifted plane tickets, yacht charters and helicopter and private jet hires. The total cost of non-SpinVox related flights was “close to £100k” in 2008, claims the letter.
“Cycling trips are expensed to the company,” it continues, “including transportation costs for the bikes, Christina Domecq’s personal trainer and relatives. Wedding presents [...] and Hen Night costs are passed through company books, as are wedding anniversary presents.
“Christina Domecq’s November birthday party is also funded each year by the company – last year at a cost of well over £11k, which the Chief Accountant objected to paying for out of company funds, given the resource constraints and the fact that it was not company-related.
“Christina Domecq has benefitted to the tune of £10k per month by having two rental properties provided to her by the company – one at 37 Bywater Street, London SW3 4XH at a monthly cost of £8k and another at Valley Cottage in Marlowe at a monthly cost of £3k. The Bywater property alone cost the company £12k to repair damage caused by Christina when it was recently exited.”
Details of Domecq’s spending on cars can scarcely be believed. “As well as having a chauffeur driven 7 Series BMW provided by the company, she also had a £100k Mercedes SL55 AMG and attempted to charge a brand new £63k Range Rover to the company.
“The SL55 AMG was replaced by an identical SL65 AMG costing £130k despite the fact that the 55 was only two years old and had done only 10,000 miles – this despite [Domecq] being banned from driving at the time after accumulating over 20 penalty points on her driver’s license.”
“SpinVox has now also paid for Christina Domecq’s wedding,” claims the letter, in what is probably the most jaw-dropping passage of all, “which included hiring a private island for 3 days, and flying in 28 guests from around the world to attend, at a cost of close to £150k, at a time when there was a possibility that the company would not have sufficient funds to clear January payroll and when QC Houses [the company's call centres] have not been paid for almost 3 months.”
“In total,” the author estimates, “Christina Domecq personally extracts well in excess of £1m annually from the company despite the company’s relatively insignificant size, hugely loss making status and precarious financial situation.”
Her benefits for 2008 are listed as £220,000 in salary, which The Kernel has confirmed corresponds with relevant records deposited with Companies House, together with a £140,000 guaranteed bonus and approximately £100,000 in additional bonuses. “Personal and family flights” come to £100,000, as does “personal expenditure on credit cards”.
Domecq’s personal trainer was billed to the company at an annual cost of £40,000. Her personal financial advisor was employed by the company as well, at a cost of £130,000.
The letter details how SpinVox’s chief financial officer, his “3 key reports” and many other members of the company’s finance team had resigned by the end of 2008 over the issues the letter sets out. These departures have been independently verified by The Kernel since, as have many of the individual transactions listed in this report.
Since the letter helpfully refers to suppliers by name, The Kernel was able to check their records to confirm that charges were settled by SpinVox and not by Ms Domecq personally. Furthermore, we have obtained new testimony from staff working at the company at the time which corroborates the contents of the letter.
Christina Domecq benefited from the kindness and protection of her contacts in the entrepreneurial and business community while she was in charge at SpinVox, but since the company was sold off, more of them have felt humiliated and betrayed by their experiences with her.
As a result, they have been willing to speak to us to confirm some of the facts we have repeated in this report.
It is not known how much Domecq extracted from SpinVox altogether, but in the words of one investor in the company, who spoke to us on condition of anonymity, “a penny would have been too much”.
Watch your backs, Kiwis.