Realty Times has obtained documents that reveal that REBIG, one of the targets of the forensic audit ordered by MLSNI shareholders, is negotiating with Price WaterhouseCoopers (PWC) to sign a nondisclosure agreement in advance of any review of REBIG documents or discussions with REBIG personnel. While the concept is acceptable to PWC, suggests the attorney for MLSNI, terms of the agreement are "problematic."

REBIG is the data licensing firm that was started with an approximately $2 million investment from MLSNI shareholders, the ten associations that own the MLS. According to sources, the money was routed through an MLSNI holding company called Multiple Solutions, LLC, to be invested in REBIG. MLSNI CEO and chairman Jay Huffman's wife, Brenda Huffman, is CEO of REBIG, and their relationship has caused concern among certain shareholders because of Mrs. Huffman's large salary, rumored to be in the $350,000 range plus 12 percent of the company, and profits from REBIG have never been returned to MLSNI. Mr. Huffman sold the REBIG investment idea to MLSNI shareholders based on his wife's concept for data licensing, which sources say she obtained the blueprint for implementing while employed in her previous job with Homestore.

Those nagging concerns, coupled with late accounting reports which MLSNI failed to deliver to shareholders in a timely fashion, drew alarm which resulted in the MLSNI board of directors voting to pursue a forensic audit of all of MLSNI's and CEO Jay Huffman's holdings, which would naturally extend to Multiple Solutions and REBIG.

REBIG has stalled PriceWaterhouseCoopers' investigations into its financials by requesting extensive nondisclosure which could render the investigation all but useless.

Attorney for MLSNI, Stephen J. Bochenek, writes in a letter to MLSNI shareholder representatives, "The terms of the nondisclosure agreement that are particularly problematic are those that would preclude PWC from including any information it learned from a review of REBIG documents or from interviews with REBIG personnel in its forensic audit report to the shareholders unless given permission by the REBIG Board of Governors. The REBIG's proposed nondisclosure agreement could also arguably preclude PWC from using information obtained from MLSNI files and material concerning REBIG. In addition, there are limitations concerning PWC's ability to retain copies and other evidence of information obtained from REBIG unless approved by the REBIG Board of Governors. PWC would not know if the REBIG Board of Governors would approve such document retention or communication of information until it provides to the REBIG Board of Governors the document request or the proposed information to be included in the forensic audit. This could result in significant time and cost incurred without any benefit to the shareholders as PWC could be precluded from including any pertinent information obtained from the REBIG review in the forensic report."

MLSNI shareholder response will be interesting as the stall tactic raises at least four important questions that aren't likely to go away:

Should REBIG be accountable to its investors?

Should associations be making investments into entities they must negotiate with in order to see how their money was spent?

What is it that REBIG doesn't want documented in the forensic audit report?

Why are there seemingly only two choices here - conclude the audit or agree to REBIG's request? Isn't there a third option - get the information and include it in the forensic report? Isn't that what the forensic audit was meant to do?

REBIG has sold 23 out of approximately 900 MLSs on datalicensing, with contracts underway with seven more. If data comes to light that its business was not doing well long before the audit, it could cause MLSNI to ask questions such as why were principals' salaries so high when the startup was so far from profitability?

It's a fiduciary breach for all involved, as many association members would have much preferred $2 million be returned to them or spent on technologies to benefit them, according to some members.

But rising alarm about the costs of the audit, rumored to be over $230,000 so far, may halt the investigation short of its goal of finding out exactly what happened to the $2 million, and may work in the Huffmans' and REBIG's favor if MLSNI shareholders decide to fold their hand at REBIG's bluff.

Before PWC spends any more of its client's money, it wants instructions in how to negotiate the nondisclosure agreement by special meeting or written unanimous consent. The other alternative is to conclude the audit without the REBIG information, which means the $2 million and the $230,000 were spent for nothing.

"Unless we hear to the contrary by July 9,2004, we will assume that the MLSNI shareholders will not take such action and PWC will begin preparing its forensic audit report for delivery to other shareholders at a special meeting," writes Bochenek.

One shareholder says that if for any reason the forensic audit falls short of looking at REBIG, then a lawsuit will certainly open their books for all to see.

Brenda Huffman and Stephen J. Bochenek could not be reached for comment in time for publication.

Published: July 6, 2004

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