Managed Services Lawsuit: N-able Files Against MSP on Demand
N-able Technologies Inc. has filed suit against MSP on Demand and its founder, Ramsey Dellinger. The suit alleges financial fraud within one of the managed services industry’s best-known hardware as a service (HaaS) players. Here are the preliminary details, which allegedly involve altered invoices and unpaid bills, and perhaps even embezzlement within the halls of MSP on Demand.
According to the Pacer (Public Access to Court Electronic Records) web site, N-able Technologies Inc. filed suit against MSP on Demand and Ramsey Dellinger in North Carolina Western District Court. MSPmentor obtained a copy of the filing, dated May 17 2010, from the Pacer system.
According to documents and exhibits within the filing:
- N-able alleges MSP on Demand committed fraud, deceptive trade practices, and breach of contract, among other items. N-able alleges that it has suffered damages in excess of $325,000.
- The State of North Carolina in March 2010 informed MSP On Demand that the company was not in compliance with the North Carolina Limited Liability Company Act and MSP On Demand was delinquent in filing two annual reports.
- Dellinger, together with his spouse Dawn Dellinger, filed bankruptcy twice in a period of 13 months (in 2008 and 2009). In both bankruptcy cases, the Dellingers listed “MSP On Demand, LLC” as a fictitious name that they use to conduct business, N-able alleges.
An N-able spokeswoman declined to comment about the suit.
The suit arrives as MSP on Demand apparently is being acquired by XnE Inc. MSPmentor reached out to MSP on Demand’s Ramsey Dellinger and XnE Chairman and CEO Michael Cummings for comment about the suit. (XnE was not named in the suit.) Neither Dellinger nor Cummings replied to the request for comment by the time this blog was initially posted.
Who Owns MSP on Demand?
XnE’s agreement to acquire 60 percent ownership in MSP On Demand, dated February 10, 2010, included the following statement:
“SELLER represents that to the best of SELLER’s knowledge, that neither the SELLER nor MSP on Demand, LLC are currently the subject of any lawsuit threatened or filed.”
Fast forward to the present, and I wonder if the N-able lawsuit against MSP on Demand kills XnE’s agreement to acquire MSP on Demand. I’ll let you know what Dellinger and Cummings have to say, if I hear from them.
In the meantime, here are details about N-able’s filing against MSP on Demand, according to court documents obtained by MSPmentor from the Pacer online legal system.
Questions About MSP On Demand’s HaaS Dealings
To understand N-able’s lawsuit against MSP on Demand, you need to have a feel for how software providers, financial firms and MSPs work together in the managed services ecosystem.
Within the filing, N-able offers the following overview plus a glimpse at the alleged fraud by MSP on Demand. The filing stated:
“Many of the partners who purchase N-able’s hardware/software and online resources would finance their purchases with the help of a reseller/broker like MSP on Demand through any number of financial leasing companies such as Direct Capital or Great America.
When MSP on Demand acted as a reseller/broker, N-able would invoice MSP on Demand for sales made and MSP on Demand would, in turn, invoice the financial leasing company for amounts owed. Unknown to N-able at the time, MSP on Demand in some cases would submit altered invoices under the N-able name to the financing leasing companies. Proceeds from the sale were then funded by the leasing financial companies directly to MSP on Demand on N-able’s behalf, who would then subtract their commission owed and immediately forward the remaining amounts due onto N-able.”
Uncovering Fraud: But Who’s Responsible?
The legal case includes several exhibits, such as emails between N-able and MSP on Demand’s Ramsey Dellinger. In a February 24, 2010 email from Dellinger to N-able VP of Sales Mike Cullen and VP and CFO John Blaine, Dellinger allegedly wrote:
“After reviewing deals and our accounts it has come to my attention that I have had a person in our accounting that has embezzled money now for some time (so far over a year or more). Everything began to come to a halt once I signed the agreement with XNE back in December’09….”
In the email, Dellinger said the person who allegedly committed the fraud “is being arrested.” But N-able alleges that questionable MSP on Demand dealings continued after the February 24 email from Dellinger.
On March 31, N-able requested that MSP on Demand reimburse it for amounts totaling $298,900.00 on a payment schedule from April to June 2010. In the filing, N-able says MSP On Demand has not made any of those payments.
MSP on Demand’s Dealings
Meanwhile, numerous MSPs and solutions providers apparently have been working with MSP on Demand.
Within the suit, N-able alleges that “Many of the accounts for which monies are due from MSP on Demand were paid by the leasing companies to MSP on Demand in June, November and December of last year, including funds on behalf of the following purchasers:
- Tomorrow’s Technology Today (funded June 15, 2009);
- Access P.C. Consulting (funded November 20, 2009);
- All Business Systems (funded November 16, 2009);
- ThrottleNet (funded December 7, 2009);
- Brazen Technologies (funded November 11, 2009);
- Plan B Networks (funded November 23,2009).
Others that were either funded in January, February or March of this year including:
- Intrinium, Inc. (funded January 11, 2010);
- Managed IT Systems (billed February 15, 2010);
- Hudec’s Computer Consultants (funded Febr 2, 2010);
- Troy Tech a/k/a Cribbs (funded February 25, 2010) and
- Workplace Technology Center, Inc. (funded February 23, 2010)”
To be clear: The N-able lawsuit does not target the MSPs or leasing companies. Rather, N-able appears to be documenting how MSP on Demand allegedly received funds and/or altered invoices on MSP financing deals involving multiple MSPs and leasing firms. MSPmentor is reaching out to the companies above to see if they have a comment about N-able’s lawsuit against MSP on Demand.
To reiterate, I’ve reached out to MSP on Demand’s Ramsey Dellinger and XnE Chairman and CEO Michael Cummings for comment. I’ll post an update if/when I hear from them. An N-able spokeswoman declined comment about the lawsuit.
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If these allegations are true, one would only think that this is happening to all of his other clients as well. It will be intresting to see if any more come out of the woodwork within the next few months.
Update, May 20, 2010, 11:16 a.m. eastern: In an email reply to MSPmentor, Dellinger stated “I cannot comment but it is not what it appears…”
This doesn’t surprise me. He defrauded the MSPAlliance as well. Unfortunately when we kicked him out of the organization for this and breaching our code of ethics, he bad mouthed us all over the place. But that’s okay, I knew in the end the truth would come out. Thanks for covering this Joe…and you’re right, there’s more out there-
Celia@3: Thanks for taking the time to weigh in. MSPmentor will continue to cover the news, though we’re not passing judgment on MSP on Demand. Innocent until proven guilty. If/when there are more filings in the case we’ll be back with updates.
Jim@1: We’ve touched base with several MSPs that work with MSP on Demand. A few didn’t reply. Those who did offered “no comment.”
Best
-jp
Joe – my extreme compliments to you on this article. I must say that this is the best investigative article in this space (MSP/SMB channel) that I have read in 14-months since CRN broke the CompTIA investigation in March/April 2009. This is well-researched, fact-based and it even appears you might have consulted with outside counsel to avoid libel issues (my brother was a first amendment media lawyer who advised Hearst Corp on these exact stories before he became General Counsel at SanDisk).
Ya’ shouda put a (c) Copyright on this gem!
All too often in this world we don’t receive compliments and I just wanted to take a few moments out on this Friday afternoon to acknowledge your outstanding reporting on this story. Please continue to track it and report it. With your permission – I’d like to re-blog giving you full attribution and a link.
Finally – I suggest you submit this for a journalism award!
cheers…harrybbbb
Harry: We’ll be back with updates if/when more filings surface.
-jp
Wow. I couldn’t believe this when I read it!
@Harry is right, this is kick a$$ news making Joe! As I commented some time back MSPMentor is really the only news maker in this industry.
I do hope this isn’t true as I hold Ramsey in high regard. He has an excellent grip on how to approach the MSP/HaaS opportunity and was a good resource for those looking to engage those opportunities.
This only heightens my skepticism of the “HaaS” industry today, which seems no more than a shell for a leasing operation. It is very clever, but as we do not resell hardware or provide managed services or support services at my firm I have a hard time recommending my clients do anything short of funding hardware directly. There is no sense in paying interest on services 36 months in advance. It is a bad financial practice for MSP’s and certainly it doesn’t help the client.
Good alternatives to the MSPOndemand approach would be that of Karl Palachul’s. I wish I had consulting clients in his region as I would bring him to every engagement! I think he wrote a book or guide on how his company does HaaS that you can buy at his website. I can’t remember where but you can probably google it…
Andy Myers
http://www.myersmathis.com
http://www.greatlittlebook.com/Products/HaaS/index.htm
Here it is. I would recommend services like this to clients if more MSP’s were doing it.
I understand the HaaS approach and what companies like Chartec do to assist MSP’s in engaging clients, but the value of the MSP is entirely missed. A good MSP brings expertise and experience that can not be bought at a competitive price online. I would prefer my clients buy Dell and HP for more reasons than I can list in a short comment, and I would prefer my client not be in charge of that buying process.
When we bring an MSP or service partner to meet a client we look for providers who:
1.) Possibly have familiarity with the client’s market and core business
2.) Are geographically positioned to provide good service
3.) Offer predictable and measurable results.
4.) View the engagement as a long term symbiotic partnership, not a sale
Our clients understand they will have to pay for procurement services and that they aren’t going to get the $399 Dell Web Special Billy from engineering found online. MSP’s have to make clients understand that service relationships are really partnerships, and that their is overhead to acquiring and managing these assets. Getting here can obviate the need for market gimmicks such as HaaS.
Just my 2 cents from a perspective that takes in to account both sides of an MSP engagement..
Andy Myers
MyersMathis*
Joe-
Congrats on good journalism. Seems to be a lost art today, especially presenting the real facts with an unbiased opinion. Thank you.
I was hesitating to comment on this article. It is sensitive in nature and I believe there is still information that needs to be brought forth that only Ramsey can provide. And, some of it may be NOOD-B. (None of our Damn Business).
However, Andy brought an important discussion point that I just can’t ignore. It appears from Andy’s website that he has just recently formed his consulting group with a few other coaches in May of this year, after owning several IT companies. So I was thinking, the facts about “HaaS” and CharTec’s “Beyond HaaS” offering may have eluded this organization.
First of all, the foundation and creation of CharTec evolved from our own needs as an MSP. We get it—we’ve been in the industry for 18 years. We created CharTec to add additional value beyond just expertise and experience, and then released the concept to the channel to help other MSP’s succeed. The ability to layer in hardware as part of the offering allows MSP’s to control and stabilize a client environment, train techs on a set standard of repair/deployment processes, manage the client’s licensing, and—get this—make hardware profitable again! Many of our partners report an increase of annuity based contract in excess of 50%–just by adding hardware to their current offering and attending our academies.
In addition, CharTec provides HaaS sales training, new product development and services—such as VoIP systems and helpdesk, and continues to evolve services to help our IT nation. CharTec doesn’t need gimmicks—we are who we are. And, we make it very easy to procure equipment for our Partners. We don’t lease, we don’t finance. Call it HaaS, call it TaaS. I call it being of service and helping MSP’s do business better and keep more of their hard earned profits.
If you are a true trusted advisor and care about your client, why would you tell them, “Here is a recommend list, now go procure the hardware yourself—then I’ll set it up.” Are you really “managing” that client? Are you really being of service and “managing” that process? When a warranty issue occurs, do you tell the client to call Dell or HP’s “non-US based, award–winning technical support” to handle it? Is that “managing”? After all, Manage is part of the MSP name—right? CharTec helps MSP’s do just that.
And, let’s not forget Dell has reduced our services to a checkbox at the end of a website purchase “Do you want manage services with this order?” We are sending our clients to place orders from a competitor. I hope our IT nation realizes this soon. We need to protect our industry and our trade. And, this is no gimmick.
Alex Rogers
CEO
CharTec
Alex I have no doubt that Chartec is a great fit for MSP’s (aspiring and established). We are not “coaches” or anything close to a startup, but you are right in that I have spent many years in the IT industry as an owner and executive in several companies. I know this market…
If I were a service provider or MSP today I would definitely be leveraging Chartec or offerings such as Ramsey created. I probably should not call it a “gimmick”. It is a sales engagement tool. But really, what does gimmick mean? It’s way to say “Hi I’m different, let me in and lets talk about it.”
You may have misread you comment above but please look again, we absolutely want our MSP partners doing procurement and life-cycle planning for our clients. I reference the Great Little Book company because there are some great ideas in that HaaS book that took years to develop.
We don’t want clients thinking about baseline systems. We don’t even want them thinking about application development or application integration. We want them to point on click to get the information they need to make meaningful decisions.
Our client relationships are not born as a typical MSP sales engagement would be. We are brought in to improve process, evaluate systems and applications, and in many cases help reinvent a company to adapt to change. Mathis Consulting has always partnered out various aspects of our projects rather than trying to be “everything to everyone”. We will continue that as MyersMathis.
I still have to say a vendor coming to me selling only the products he can put his label on is in a weak position. We have already prepared our customers for consumption of managed services and a variety of other outsourced solutions, so the MSP doesn’t have to show up and explain his business or convince our clients of their value.
I fully understand the need to set yourself apart from the big buys. Having unique hardware and a unique approach makes good sense if you are growing an MSP practice. Dell and Microsoft regularly treat the channel like Tiger Woods treated his soon to be ex-wife. As soon as you turn your back they all over the map!
I wouldnt turn away a Chartec vendor without evaluating their capabilities. Every client is unique and if all of the requirements are met then we would consider the offering.
The point I am making here is that the hardware selection is limited to that which an MSP can slap his brand on. There is no value in that, at least not for my client.
Andy Myers
http://www.MyersMathis.com
I don’t believe Dell has reduced our services to a checkbox, many MSP’s in the market have already done that themselves.
MSP’s shouldnt be quoting services that reveal their per node pricing. Give one price and explain the key benefits. The per node pricing is a detail in the contract the customer only sees when reviewing and signing an agreement.
We actually ask MSP’s to take this out of their proposals. The last thing I want is an executive walking around the office looking to eliminate computers that they don’t feel get used enough in an attempt to save $100/month.
And I think everyone here can relate to that… 🙂
Andy Myers
http://www.MyersMathis.com
Andy,
Good advice on the selling based on total value and not per node pricing. That being said, I’m curious as to how other MSPs handle an event such as a client downsizing or reducing the number of devices? What about when a prospective customer flat out asks how you set your pricing?
@Brian
I would never include downsizing options in a contract. A company that downsizes isn’t necessarily a company in distress. In many cases they are in a much stronger financial position after such a move.
I would price a contract and terms something like this…
$100/node for desktops
$500/node for servers (plus costs for supporting special apps and add ons like exchange or SQL)
Consider a network with 63 desktops. 3 servers. That should be $7800 right? Wrong! You should approach it with a buffer and price in additional margin to cover growth.
This would be $9,000/month (quoted as 108,000 annually) You would allow in your proposal and contract 65 desktops and 3 servers with up to 10% growth over the course of the 3 year agreement. So the $9,000/month sticker covers 5 or 6 additional desktops and even an additional server.
If a company experiences more than 10% growth it’s time to negotiate a new contract. If they are already anticipating 20 to 30% growth it should be priced into the contract upfront. This is how real partnerships work!
If a client drops 10 employees I would hold strong on the agreement and pricing. If they are filing chapter 13 or cutting 50% of their workforce then you would want to renegotiate. It’s a partnership. The point is contracts should not be made to be broken from the onset.
Another thing to consider is your entry point. If another consulting company or referral customer isn’t laying out the red carpet for you it is obviously harder to create a high margin managed services opportunity. If you are entering via the IT Department or middle management you are going to have a lot less traction with a high margin proposal.
Your goal should be to meet with the CFO, not the CIO. If the CFO offers to hand you off to their CIO or IT Director you should decline respectfully. An IT Director is not going to take your $100/node proposal anywhere for you. Remind the CFO/CEO/President you are trying to engage that you approach technology from a business productivity and viability perspective. They will agree that the guy in charge of IT isn’t the right person for that discussion. Be patient, a good meeting with key decision makers will not be as easy to get.
The bottom line is we want MSP’s to have high margin pricing so we know they are going to give our client’s a high level of service. At this point Dell is put in it’s rightful place. The MSP manages evaluating desktop needs, life-cycle management, change management, warranty dispatch, procurement, etc on behalf of the IT department.
Remember the MSP is supposed to be a Virtual IT Department. Would an internal IT Department be selling their own company hardware? Would a CFO be selling his own company 401k packages or insurance policies?
There are many ways to make a profit and the IT landscape is constantly changing. I haven’t had an MSP to date complain that they aren’t getting the hardware business. I revert to Arnie Bellini’s (CEO of Connectwise) statement some months ago. You have to get paid for what you know, not what you have to resell (I am paraphrasing). That was shortly after he invested big $$$ in an exchange hosting system only to have Microsoft launch BPOS months later.
Andy Myers
http://www.MyersMathis.com
Well you did such a great job finding and telling us about it, now what? You posted this in May and nothing since then, did it go away? If so why? Was there any grounds for the suit or was it a struggling company trying to blame somebody else? Or was it over the top? Did they settle? Please follow up if you are so willing to throw a company under the bus based on a lawsuit filed. Anybody can file a lawsuit against anybody in this country and it does not mean it is true. Maybe somebody should sue you and say a bunch of bad things, ruin your career and business. And later go oops I am sorry my bad.
Hi Riley,
Two updates as of this week:
1. N-able continues to pursue legal action against MSP on Demand. The case is still pending.
2. MSP on Demand allegedly is overdue with payments to at least one MSP. We are speaking with all sources involved and monitoring the situation closely.
Also, I stand by our original report and ongoing coverage of this topic.
-jp
Great job Joe. You should do a follow up on this story. I was talking to someone the other day and they thought they heard N-Able dropped the lawsuit. If that’s true, Sounds like N-Able was blowing smoke! Law suites don’t get dropped unless there is no grounds to sue or Ramsey found something n-able didn’t want out. I wonder what really happen. Do you think Ramsey was the victim in this case?
Ted,
MSPmentor continues to track this story. I don’t believe the story has ended but we’re not yet prepared to publish a follow-up. We’re researching some new potential developments.
-jp