Michael Fenne was a colourful boss. He harangued workers over the public address system, made staff pray in his office and, worst of all, spent most of the company's money on a lavish launch party. But no one realised quite how colourful he was - until a colleague noticed his resemblance to a notorious con-man on the run from the law. Dan Goodin unravels a tale of greed, guile and gullibility

Late in the afternoon of November 12 last year, several squad cars from the Orange County sheriff's department converged on San Juan Capistrano in California, home of Pixelon, a high-profile internet company selling a new way of broadcasting television-quality video over the internet. A hastily formed coalition of company officers and directors were planning to oust Pixelon's founder and chairman, Michael Fenne. They had called the police because they worried Fenne - a big man weighing in at 350lbs - might turn violent.

From the start, Fenne - who was partial to signing his emails "Big Giant Head of Pixelon" - had proven a highly unusual founder. He had demanded that he be paid out of the company's expense account, and displayed a tyrannical and bizarre management style, requiring some employees to work 36-hour shifts and holding a mandatory prayer meeting in his office. But the final straw had come when the company's investors learned that Pixelon had spent $16m (£10.8m) of a recently agreed $20m (£13.6m) round of financing on a star-studded launch party. Lee Wiskowski - chairman of Advanced Equities, the Chicago investment bank that had handled the financing, and a Pixelon director - had hastened to company headquarters for an emergency board meeting.

The first thing Wiskowski and his two companions heard when they arrived was the sound of Fenne's voice over the Pixelon public address system. "This is the master speaking," at least a half dozen people present remember Fenne barking. "George better respond to me immediately, and if he doesn't have all the answers I might have to take him out behind the barn for a whooping!" Another message rang out: "Frank, report to the woodshed, your uncle is going to give you a whooping." The messages might have been funny - were it not for the air of fear they created.

Later that morning, a Pixelon executive briefed Wiskowski's group. A week or two earlier, the executive told them, he had walked into Fenne's office for a meeting to find another executive on his hands and knees with his head bowed before Fenne, who was sitting in a chair with his hands on the man's head. "I've never been around a cult leader, but that's the way it felt," the executive told the team. "This feels weird," one member of the group planning to remove Fenne from the board remembers confiding to another. "This feels like someone could die tonight."

Only later, after Fenne was given the boot and the company was struggling to regain its footing, would the full truth emerge: Michael Fenne, the charismatic man who raised more than $28m (£19m) for his venture, was in fact David Kim Stanley, a convicted con artist and fugitive on the run since 1996. Born in the poor rural south, the son and grandson of Appalachian preachers, Stanley had used his status and a near-hypnotic speaking style to fleece his impoverished neighbours out of more than a million dollars. In 1989 Stanley pleaded guilty to more than 50 fraud-related charges; a judge sentenced him to 36 years in prison and agreed to suspend all but eight if Stanley repaid his victims. In early 1996, having paid back only a fraction of the money, Stanley vanished.

He turned up in the sleepy town of San Juan Capistrano in late 1996, just as the internet was transforming the most unlikely people into overnight multimillionaires. His weight, once a fit 220lbs, had ballooned to more than 350lbs. He and his new wife Sheila lived out of their Hyundai and showered at a nearby beach; he told locals that Sheila had recently escaped a Mormon cult that was bent on getting her back. A letter he wrote to his former wife - who had refused to go on the run with him - gives a sense of his plans for his new life. "It has always been, and always will be, a mistake to lose faith and underestimate me," Stanley wrote. "God has blessed me with a unique ability to defy reality."

Stanley set up a fledgling computer business, Restec, whose clients, he said, included the Saudi royal family. Some of his Restec customers eventually asked him if there was a way to replay races at the local horse track over a computer so that people in other locations could place bets. Stanley told them their inquiry had caused him to stumble on a totally new way of playing high-quality video over everyday computers. By the middle of 1997, Stanley, Chuck Hauswirth - the owner of a "tele-business centre" who had leased office space to Stanley in return for a cut of Restec - and two associates had founded Digital Motion Video.

Pulling video off a television and turning it into a file that can be played over a computer is no small feat, and this was even more true in 1997. The amount of information carried in the typical video is so vast that it would take a day or more to download a 30-minute sitcom. But in less than a year's time, Digital Motion had come up with video that seemed on the cutting edge, producing large images with the size and fluidity of television.

Soon, Stanley was pitching his plan to launch a 1,000-channel internet broadcasting empire that would rival anything that CBS or Disney could ever build. His first crop of takers included a psychologist, the owner of a tile company and a local insurance agent. Each invested between $50,000 and $125,000. And thus was born Future Link Communications, later renamed Pixelon.

By the spring of 1999, Pixelon was giving every impression of being well on its way to going public within the next year. The company struck an exclusive deal with Paramount Pictures to make web versions of its trailers for the upcoming movie, Star Trek: Insurrection, and forged a similar pact with Will Smith to make his Wild Wild West video available over the web in Pixelon's format. It was against this backdrop that Lee Wiskowski, whose investment bank Advanced Equities was looking for its first hot deal, met Pixelon on a Saturday morning in May 1999.

Stanley rattled off the usual litany of his former employers, which included the CIA, Walt Disney and Sony. He showed them the Will Smith video. The financiers were impressed, and Pixelon agreed to make the firm its agent for a $20m private placement - a method of raising money from wealthy individuals - that would later rise to $28m.

But while Pixelon's backers were gloating, employees inside the company were growing suspicious. Gary Devore, a video-encoding engineer, says he had suspicions about the technology, but didn't fully appreciate the deception until mid-August, when Stanley claimed Pixelon was using its proprietary technology to broadcast highlights of the Iowa Straw Poll - the bellwether vote of the US presidential race - live over the internet. When Devore reported to work that day, he discovered Pixelon was actually using Microsoft's Windows Media Player - the very technology Stanley so often cast as inferior - to broadcast the event.

Stanley, meanwhile, was becoming increasingly tyrannical and abusive. One Sunday in August, he instructed all employees to meet in his office for what was described as a worship service. At the meeting, held in near-darkness, Stanley played a piano and sang a hymn he said he had written. His wife sat close by, wiping tears from her eyes.

Devore says he went along with it partly because he still had hopes of becoming rich when Pixelon went public. "Michael would say in meetings that everybody in this company is going to be a millionaire in a short period of time. The mania [was] the glue that kept the dysfunctional family together."

Until autumn last year, the drama unfolding inside Pixelon was a carefully kept secret - and it would probably have remained that way were it not for iBash 99, Pixelon's extravagant launch party. Held at the MGM Grand in Las Vegas on October 29, the day-long extravaganza included a reunion by the Who and performances by the Dixie Chicks, Faith Hill, Tony Bennett, and Kiss. The idea was to get Pixelon's name in front of all kinds of people, from stockbrokers addicted to classic rock to senior citizens who liked lounge crooning. The event would provide the perfect opportunity for Pixelon to showcase its unique ability to broadcast high-quality video live over the internet.

But it never happened that way. Despite spectacular performances, Pixelon was unable to broadcast the event live using the very technology the event was designed to hype. The vast majority of footage never made it online. And, worse than being a public relations disaster, iBash turned into a financial black hole that largely sank Pixelon's chances of ever getting off the ground. For their efforts, the Who received $2m (£1.3m) in cash and a generous offering of stock. LeAnn Rimes made $1m (£686,000). The Dixie Chicks got $875,000 (£595,000) and at least $230,000 (£156, 500) in stock. All told, iBash cost more than $16.2m (£11m) - more than 75% of the capital Pixelon had taken in during its year and a half of existence.

As that November day wore on, Wiskowski and others who wanted to oust him worried that Stanley - who was clearly unhappy about their visit - might erupt if he learned of the plan. They decided to get him into the conference room and that Robert Feldman, a recently hired Pixelon employee, would keep an eye on the room from outside through a window. If the plotters thought Stanley was about to go ballistic, one of them would gesture to Feldman with a thumbs down, the agreed-upon signal for him to call the police.

As the group attempted to meet again with Stanley, they encountered a new problem: posted outside his office were two large bodyguards, and word around the office was that they were armed. Wiskowski and a colleague walked past the guards and entered the office. Sensing he was close to being ousted, Stanley suddenly was in a mood to bargain.

"Give me 90 days and I'll turn the company around," he told them. Cam Fraser, another new Pixelon executive, approached the office door and asked the bodyguards to leave. They refused. As nonchalantly as he could, Wiskowski feigned a yawn and a stretch, clasping his fingers together and turning his hands so that his two thumbs were clearly pointing downward. Within a half hour, squad cars arrived and removed the bodyguards peaceably.

The three Advanced Equities principals remained in Stanley's office trying to coax him into the conference room. By nightfall the board meeting finally got into gear. Wiskowski smacked his palm on the table and made a motion that Stanley be suspended for 30 days. "You betrayed me," one meeting participant remembers a clearly stunned-looking Stanley saying. Interim chief executive Paul Ward seconded the motion before Wiskowski had a chance to respond. Stanley was even more shocked. "Now I know who my Judas is," he said. Stanley's reign at Pixelon was over.

Almost immediately, however, it became clear that the drama was not over. Soon after the board meeting, word circulated in Pixelon's inner circles that someone had found a document on Stanley's computer laying out a detailed plan to leave the country in the event an unidentified "they" discovering his con. The letter discusses using hair dye and coloured contact lenses to create a new identity and eventually re-entering the country. "I would only do this after a face change through plastic surgery."

Stanley wasted no time rising from the ashes of his failed company, buying a house in Big Bear City, California, and setting up several new companies. But then, in early April, he got the call he had dreaded for four years. A disgruntled associate from one of his earlier San Juan Capistrano ventures had spotted a picture of David Kim Stanley, one of Virginia's 12 most-wanted fugitives, and thought it looked a lot like the man called Michael Fenne. A few days later, as San Bernardino sheriff's deputies moved to take custody of Stanley, they found only his empty house, clearly vacated in a hurry.

In May, Pixelon laid off its remaining employees; the last executives were fired last week and a replacement board appointed. Stanley, who turned himself in, now sits in Wise County jail in Virginia, where he is being held pending a hearing in which a prosecutor will demand that he finally serves the prison sentence he received more than a decade ago.

Nobody knows for sure if he was simply good at concealing a fortune in ill-gotten gains or simply lied and cheated for sport and revenge. What is clear is that he believes he has done nothing wrong, sees great things in his future and, when he gets out of jail, plans to finish what he started at Pixelon.

"In running for my life, I found my life in technology," says Stanley, who likes to remind people of all he was able to accomplish at Pixelon without so much as a social security number. "When I'm operational again, whenever that will be, without the chains and limitations of being underground, I am going to build that network."

 A longer version of this article is published in the Industry Standard magazine and is available online at www.thestandard.com A European edition of the Industry Standard will be launched this autumn