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Firstline Pyramid Collapses in Chapter 11 Bankruptcy

For the past two weeks, current and former employees of Firstline Security (Orem, UT) have been leaving comments that Firstline filed for bankruptcy, but I couldn’t find any official confirmation of it.

Today, I have confirmation. From the Salt Lake Tribune via Bloomberg News:

Orem company files for Chapter 11 bankruptcy

Firstline Security Inc., the Orem-based provider of customized home security products, has sought bankruptcy protection from creditors.
The company listed debt and assets of less than $50 million in Chapter 11 documents filed Friday in U.S. Bankruptcy Court in Salt Lake City. The company didn’t give a reason for the filing in court papers.
– Bloomberg News

This brief announcement follows a flurry of comments about their service center being shut down and employees sent home after they were unable to make their payroll obligations this Friday. One commenter left a copy of the email he received from Trevor Keyes, one of the founders and owners of Firstline (grammar notwithstanding):

“Firstline Employees: As many of you may have heard, several of Firstline’s largest creditors have taken informal and formal legal actions that have resulted in Firstline’s inability to sell customer accounts and generate operating revenue to pay its ongoing expenses.

As recent as this Wednesday, Jan 23rd, Firstline was required by court-order to hold all funds generated by the sale of customer accounts pending a final hearing for appointment of a receiver for the company. Firstline has diligently endeavored to resolve the issues raised by its creditors so that accounts could be sold and expenses paid, but has been unable to do so.

After considering the wide array of circumstances—including what is in the best interests of employees—Firstline has determined that it is necessary to seek federal bankruptcy protection under chapter 11. Firstline is confident that reorganization under chapter 11 will provide the best result for payment of employees and will further provide the ability to move forward as a company and continue to operate. The short-term ramifications of filing chapter 11 are unpleasant.

Until Firstline obtains permission from the bankruptcy court, it cannot pay any debts that were owed as of the date of filing. This means that Firstline will be unable to meet its payroll obligations to you today. The good news is, however, that the money owed to you as current wages (with certain limitations including a $10,000 cap) will be treated as a priority claim in the bankruptcy to be paid ahead of general unsecured creditors.

Additionally, all wages earned after the bankruptcy filing are treated as administrative expenses in the case and are also required to be paid ahead of all general unsecured creditors. This means those of you we seek help in rebuilding will have secured pay moving forward. Firstline’s immediate order of business in the bankruptcy will be to seek permission to pay priority wage claims early so that the burden on you will be lessened. This process may, however, can take several weeks to accomplish.

To facilitate reorganization, it is unfortunately necessary for Firstline to temporarily reduce its excellent staff to a group of core rebuilders who will begin the task of stablizing and rebuilding the business. The personnel on the attached list are those that we feel are necessary to accomplish this objective.

To those not on the list, please understand that you are valued and appreciated and that we deeply regret circumstances that have led us to the point that we must reduce our staff. We credit the successes of the company to everyone, and we hope that you understand that we will do everything that we can to rebuild, rehire, and, most importantly, to pay you in full for the excellent services you have provided. Please encourage the rebuilding team as they are all of our hopes for a brighter future and immediate potential for future jobs, future pay etc.

Please await further information via email and mail. We implore your support and patience. There is a quote from Mother Teresa that says: ―What you spend years building may be destroyed overnight – BUILD ANYWAY! People are unreasonable, illogical, and self centered – LOVE THEM ANYWAY!‖ Firstline Security, Inc”

This is tragic for the employees who weren’t paid today and certainly must be jarring to the customers as well. Right now those customers have no one to service their contracts. I’m not sure how the monitoring of their systems is done, but one way or the other, it certainly is bad news for everyone involved.

And this year’s Prodigy? I’m guessing my prediction was right — there wasn’t one, or at least no one was paid the kind of money they promised.

The rise and fall of Firstline is a classic picture of a pyramid scheme and a study in the art of deceptive hiring and sales techniques. I don’t think we’ve heard the last of this story, so stay tuned. And to the students out there who thought they would see some sort of final payment next week for all their summer efforts, you have my sincere condolences.

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