Thanks to a series of high-profile exits and a generally frothy financing environment, it’s not unusual to see startup founders spending money lavishly these days. But the story of Motionloft and its founder Jon Mills could serve as a cautionary tale, especially for unsavvy investors drawn to a big payout.

On the surface, Mills seemed like a successful entrepreneur. His company, Motionloft, provided real-world analytics for store and property owners who needed to analyze pedestrian and vehicle traffic that passed by their respective establishments.

Mills was a first-time entrepreneur, but he had received backing from high-profile investors like Mark Cuban, and according to the Motionloft website, the company had secured clients like CVS, Saks Fifth Avenue, and Cushman & Wakefield.

Several former friends say Mills was also fun to be around and generous about inviting them to party with him at various music festivals and in places like Las Vegas.

All of which is why, when Mills started asking friends if they wanted to invest in his company, a few of them jumped at the opportunity.

They say Mills cashed checks that altogether were worth hundreds of thousands of dollars, promising them a small percentage of the company. Later, when he told them an acquisition was imminent, they felt confident they had made the right decision.

Mills is no longer part of Motionloft (Joyce Rietman is the CEO, effective December 1), and the validity of the investments his friends made while he was there is being called into question by earlier investors. As a result, after months of waiting, those friends now believe that not only was there no acquisition, but that it is possible they won’t get any of their money back.

We’ve spoken with Mills, and the former CEO admits to leaving the company in November. But he also says that all money he took as investment from friends was legitimate and used for company expenses, and he denies telling friends the company was going to be acquired.

New Investors

It all started in early 2013. Around the time of the Super Bowl, sources say Mills told some friends he had a couple of Motionloft “advisor points” he could use at will, enabling them to buy a small percentage of the company. For some, he also dangled the possibility of an acquisition that would make the investment pay off.

“He told me, ‘Mark Cuban said to pick two good friends who could afford [the advisor points],’” said one former friend, who we’ll call “Stephanie.” (Several of our sources have asked us not to use their real names.) “He said, ‘Give it to Motionloft, and come June you’ll get a percentage of the sale.'”

Stephanie (again, not her real name), was a friend of Mills’ girlfriend and had spent a lot of time with him over the previous two years. She trusted him enough to empty out her savings account and write a check for $20,000. Mills then promised her documents showing she was a shareholder in the company soon after, but she says that paperwork never came.

To celebrate, she was asked to join Mills and his then-girlfriend, along with some others, on a trip to Coachella that included a ride in a private jet and stay in a rented villa outside the music festival.

Mills claims that Stephanie was given a convertible promissory note in February, and his attorney has sent us a copy of the contract. It is dated February 21, 2013, the date that she made her investment.

Stephanie wasn’t alone in being asked to invest, nor was she the only friend and investor that Mills took on expensive trips. Throughout the spring and summer of 2013, Mills courted other investors to the company from his group of friends.

Another former friend, who we’ll call “Jason,” tells a similar story. In April he was asked if he wanted to invest, and was told that the money would be used as a bridge loan to cover Motionloft expenses.

Jason ended up writing a couple of checks for a total of $200,000, but unlike the earlier investor we spoke with, he received paperwork to confirm his investment.

No one seems to know exactly how much Mills collected during the period in which he was soliciting money from them. Jason and Stephanie know of a few others within their group of friends and that they were invited to events with.

But so far, most have declined to share even with each other how much they invested for the same reason everyone we talked to didn’t want their names to be used for this article — that is, they are all embarrassed that they fell for what they now believe was a series of lies by Mills.

“As far as how much money was raised, Jon is the only one who really knows,” one of them told me.

Unlike Stephanie, not everyone invested because they were told an acquisition was imminent. A couple of people we talked to believed in the Motionloft business. But in the fall, Mills began telling people who had invested that the company had been sold and they should expect a payout soon.

Jason shared with us copies of text messages that Mills had sent him, some as early as mid-October, in which Mills boasted that the company had been sold. Mills showed Jason an incoming pending transfer of $37.7 million for his share of the company, and said the friend’s stake was worth $2.9 million.

Mills denies ever telling people that the company had been acquired and claims the texts as they appear below were written by someone else.

But Jason isn’t the only person claiming Mills told them Motionloft had been acquired. Stephanie and another source, who we’ll call Matthew, confirmed that they were also told the startup had been sold.

“He told us, ‘The company has been sold, you guys are all millionaires,’” Matthew said. For those who had invested in the previous months, the deal seemed too good to be true.

It wasn’t until later that they found out it was indeed too good to be true, and that Mills had been lying about the acquisition all along. There was no big payout coming.

What Happens In Vegas

Mills had a habit of inviting friends to join him for opulent parties, dinners and trips. Sources say that in a strange way, his profligate spending was part of the reason they felt confident investing in his company.

After all, he wouldn’t be spending tens of thousands of dollars a night at clubs if Motionloft weren’t doing well.

But the same spendthrift behavior that once assured them when writing checks to invest in Motionloft also eventually led them to believe that something was amiss.

It all came to a head in late November 2013 when Mills invited about a dozen friends to join him and his then-girlfriend in Las Vegas for a weekend to celebrate her birthday and the acquisition, which Mills said had finally closed.

It was the third such trip that Mills had taken people on over the course of several weeks, and it was the most excessive of the bunch.

Over the course of a few days, Mills racked up hundreds of thousands of dollars in expenses that included private jets, a penthouse suite at the Palms, and extravagant dinners.

Stephanie tells us that she had reservations about going on the trip at first. She had little money in her bank account and was waiting for the long-promised sale of Motionloft to finally close.

The reason she went — besides the fact that it was to celebrate her friend’s birthday — was that she was hoping to find time to confront Mills and ask for some of her money back. But there never came a good time to approach him. Sources we spoke with who were on the Vegas trip say that Mills seemed agitated the whole time.

His behavior, especially when it came to money, also raised red flags among some of his friends. For instance, Mills had booked private charters for his friends to fly into and out of Vegas and was staying in the penthouse suite at the Palms, but guests were asked to book their own rooms.

There was also the occasion of a large, expensive dinner at Hakkasan in the MGM Grand. With two tables and plenty of drinks and dinner, the tab came out to nearly $20,000. But Mills arrived late to his own party and left early, meaning that it ended up on Jason’s credit card instead.

The reason Mills left early was so that he could prepare the suite for the coup de grâce of his expensive weekend retreat. When his guests finally arrived back at the suite, they were treated to a private performance by R&B singer Miguel.

After spending the entire trip seeming preoccupied, it wasn’t until the private concert that Mills finally cracked a smile, Stephanie told me.

“It was like he was thinking, ‘I did this. I made this happen,’” she said.

Fallout

After realizing how much the previous few days had cost, the friends who had once written checks to invest in Mills’ company began to wonder when they would get their share of the proceeds.

Mills, in an effort to alleviate their fears, showed them what appeared to be the dashboard of his online bank account. It had $38 million in it. Their portion of the payout, he said, would be coming soon.

Below is a photo of the checking account balance Mills showed to others we spoke with. He denies that the phone is his, saying he never owned one with a crack in it.

That much is true: The photo is actually of a screenshot he shared with Stephanie. The reason she took a photo of her phone, she tells us, is that Mills wanted to share his good fortune with her, but told her she needed to delete the screen shot immediately after seeing it. She deleted it, but not before taking a photo of it on her screen.

Nevertheless, some on the trip began to wonder why they kept having to foot the bill if Mills was so flush with cash. After the Miguel performance, according to people who were invited, some guests began to confront Mills about money he owed them for personal expenses.

For instance, Jason, who got stuck with the previous night’s tab, confronted Mills. He said to Jon, “You just got all of this money, why did you stick me with the club bill?”

Mills promised they would get their share of the sale soon, but the wires never appeared in their bank accounts. Moreover, the group soon began to suspect that Mills wasn’t paying other bills.

Sources say the private performance by Miguel, which cost $100,000, was never paid for. That was also true of the private jet charters, which included three separate flights into Vegas and four flights out, and cost nearly $100,000 altogether.

Justin Sullivan is the CEO of Private FLITE, the private jet service Mills used to charter the flights in November. He told me that Mills promised several days in a row he would pay for those flights by wire and later told Sullivan he would FedEx a check. Neither came.

After multiple attempts to reach Mills on the phone, Sullivan confronted Mills at his house to demand payment. Mills then wrote two checks for a total of nearly $294,000, but both bounced, Sullivan told me.

Sullivan then created a website called JonMillsFraud.com in which he has uploaded copies of the receipts for Mills’ trips, as well as screen shots of his own text conversations with Mills.

He also began reaching out to other people who had been on the charters and found many of them were also owed money by Mills. Seemingly all at once, everyone began to feel like they had been duped.

A Plea To The Board

With little other recourse, some of those who gave checks to Mills turned to Motionloft’s original investors who confirmed their fears: There was no acquisition pending. There was not even a conversation with an acquirer, they had been told.

In retrospect, some wonder why Mills told them the company was about to be acquired, especially those who invested, because they believed Motionloft was a solid, viable business.

Jason and Matthew both told me that they wouldn’t have realized anything was amiss if Mills hadn’t boasted that a deal had been done or took the group on the trip to Vegas.

After they figured out something was up, Mills’ friends seeking to be repaid the money they invested in the company went to Mark Cuban. According to our sources, they were told the company had no record of their investments.

Apparently Mills and co-founder Chris Garrison had created a separate checking account from the company’s main account when they began soliciting funds from outside investors. Mills has confirmed this is true, but claims this second account was only ever used for company expenses.

Not everyone who gave Mills money has documentation to prove it, except for cancelled checks written out to Motionloft. Those who do have paperwork have been told by the board that its validity is questionable. We took a look at the paperwork that was given to one investor, and passed it by an attorney to review.

We were told that the document, which is structured as a convertible promissory note, appears to be legitimate, although it was not exactly a “well-written contract.”

Our sources have been told, however, that Mills had no authority to sell any shares without the board’s approval, unless they were his own. We’ve obtained a copy of the original investment agreement between Motionloft and investor Mark Cuban, dated June 30, 2010, which states that the company cannot issue any securities or guarantee any debt without Cuban’s prior written consent.

In an email exchange obtained by TechCrunch between Jason and Motionloft investor Mark Cuban in late November, Cuban wrote:

“Motionloft can only be responsible for what Motionloft has paperwork for… Anything that Jon has done that is reckless or illegal is Jon’s responsibility. Not Motionloft’s.”

Those who received documentation had been issued convertible notes that mature a year after they were issued. Those notes come due beginning early next year and throughout the summer, but Motionloft might not be able to pay them off at that time.

Later in the email exchange we obtained, Cuban said that the company had no money to repay those who Mills received investment from. In fact, he wrote that he would likely have to recapitalize the company to keep it going.

“The company is bankrupt,” Cuban wrote. “I had to put up a credit card yesterday so they would not get kicked out of their offices for 30 days. They have no cash. I’m trying to figure out how to keep them in business.”

In that exchange about six weeks ago, Cuban also urged the person who contacted him not to go to the police until he had a chance to “figure out what is going on” and “see where i can take this.” He wrote:

“If we go right to the authorities and it becomes an issue that drains resources than it hurts our chance to do anything… I can’t handicap the odds of any of us, but my guess, and its only a guess is that if it becomes a police matter in the short term, it gets much harder.”

That’s one reason why those affected have held off on getting the authorities involved. Those I’ve spoken with recognize that contacting the police or going public with the story would reduce the likelihood of either Mills or Motionloft paying them back.

In the weeks that have passed since they first contacted Cuban, we’ve been told that communications have hit a stand-still. Whatever hope investors had a month ago that Motionloft and its earlier investors would honor Mills’ agreements have since been quashed.

At the time of publication, Mark Cuban had declined to comment, except to confirm that Mills is no longer associated with Motionloft. Indeed, Mills’ name and bio disappeared from the company’s management team page shortly after his trip to Vegas. But for those who invested, it was already too late.

Cuban later sent TechCrunch a detailed response, which is republished below.

Denial

As for Mills, he categorically denies all the claims against him. When we first reached out to him on December 23, he pleaded for more time to collect documents which he claimed would prove his innocence.

In the next few days, Mills only sent a limited screenshot of an Excel spreadsheet — presumably meant to show that the investments people made went into the same bank account that Mills used for expenses — and a canceled check from that account that Mills claims was to pay for Motionloft’s rent.

On December 26, Mills began working with Los Angeles-based attorney Marty Singer, who I’ve been speaking with ever since. Singer, in case you haven’t heard of him, is the “pitbull attorney” celebrities turn to in times of crisis. He’s the guy Charlie Sheen called in his dispute against Warner Brothers, for instance, and he represented Scarlett Johansson when nude photos of her hit the Internet.

Mills’ attorney sent me a copy of Stephanie’s promissory note to show that Mills had a record of her investment, although she still claims she hasn’t received it, and her signature is not on the document. Singer also sent me a prepared statement from the following statement from Mills:

The investors’ money was all deposited into company accounts and it was used for company expenses. I never told them that the company was being acquired. I did not send the text messages as they appear in the screen shots. The text messages shown to me by you were created by another person. Also, I never had a phone with a cracked screen. I last worked for Motionloft during the last week of November.”

However, Mills’ statement came after Jason sent me a series of texts asking for more time before we published this story. He said the extra time was necessary so that his attorney could speak with Mills’ attorney. When I told him that we couldn’t guarantee that, he sent a text retracting his previous statements.

“Until the attorneys speak, I retract everything. I made it all up,” Jason wrote.

The email containing Mills’ statement, which was sent after Jason’s retraction, also contained the following note:

Also attached (below) is a text message from [Jason] sent to my client today, confirming that he made up the text that you sent to our firm earlier today. Therefore, to the extent that you are relying on any information from [him], he is an unreliable source, since he has confirmed that he created a phony text to justify your story against our client Mr. Mills. I trust that you will not defame our client.

When I sent Jason a screenshot of the statement I received from Singer, along with the word “Thanks,” he responded: “Are you being sarcastic? His lawyer is up my ass.”

In the several weeks that I’ve been speaking with Jason, he didn’t strike me as the type to make up a story this elaborate, let alone create and backdate a series of phony text messages. It’s also not clear how Mills could have known who sent me the texts in question, if they had been written by someone else.

More importantly, however, Jason’s statements, and the documents and texts he provided, correspond with evidence we received from other sources, which is why we’ve decided to include them.

At the end of the day, Jason is just a guy who gave money to Jon Mills and wants it back. In that respect, he’s not alone.

Mark Cuban’s response

TechCrunch reached out to investor Mark Cuban for a statement and he gave us this response about his involvement and the state of Motionloft.

1. I was a passive investor in MotionLoft until this past late November, early December when it became clear something was wrong. I was caught off guard and shocked. That lead to a team being sent in to do forensic accounting and determine what the financial state of the company was. At that point we realized that the company was out of cash and seriously in debt.

2. To prevent the company from closing I stepped in and took control of the company by re-capitalizing it. It is now fully operational. All sensors are up and operational and being used by our clients. To the credit of the ongoing employees, our customers continue to actively use and expand installations. Bottom line here is that the technology works and is the industry leader. That hasn’t changed.

3. We have brought in a new, full-time ceo to run the company.

4. To the best of our knowledge all company vendors and business expenses have been paid as have current and former employees, including back taxes. Fortunately, many of our employees believed so strongly in the technology and opportunity, they stayed through the problems. This has allowed MotionLoft to get back on track quickly and aggressively.

5. The re-capitalized company is back and running full speed ahead. Motionloft is the leader in real world machine vision traffic analytics for real estate, municipalities and many other applications and we intend to stay ahead of our competition for years to come.

Featured image: Floris M. Oosterveld via Compfight cc. Photo of Jon Mills and Mark Cuban from Jon Mills’ Twitter account. Photo of Jon Mills and Miguel from JonMillsFraud.com. All other photos provided by sources.