Craig Jerabeck, former President and CEO of 5Linx, left the company last September to join Paycation, a travel firm. His departure quickly led to a lawsuit from 5Linx, which accused him of violating a non-solicitation agreement and poaching employees.

5Linx claimed Jerabeck breached his contract. The company alleged he told affiliates that 5Linx faced dire financial straits. These statements, 5Linx asserted, aimed to entice top representatives to his new venture.

Barry Johnson, a prominent 5Linx affiliate, provided an affidavit. Johnson testified that Jerabeck approached him in late September, attempting to recruit him to Paycation. Jerabeck allegedly told Johnson that 5Linx owed millions to Jeremy Monte, CEO of MontBriar. He suggested Monte planned to acquire 5Linx once it collapsed. Johnson recalled Jerabeck offering him a more lucrative deal than other 5Linx representatives, citing Johnson's background and potential to bring additional representatives to Paycation.

Jerabeck denied breaching his contract. His defense argued that 5Linx affiliates operated as independent contractors, not traditional employees. Therefore, he contended, the non-solicitation clause regarding "employees" did not apply to them.

State Supreme Court Justice Matthew Rosenbaum ruled on the case last month. The judge did not determine if Jerabeck had previously solicited 5Linx affiliates. He did, however, bar Jerabeck from any future solicitations. The ruling cited a 2006 non-disclosure and non-solicitation agreement Jerabeck signed. This agreement prevented him from recruiting 5Linx employees for one year after his departure. Rosenbaum's order specifically blocked Jerabeck from "soliciting, servicing or otherwise doing business with any 5Linx accounts, customers or vendors that he called upon, sold products to, or otherwise serviced."

During the legal proceedings, Jerabeck leveled serious accusations against 5Linx co-founders Jason Guck and Jeb Tyler. He alleged they misrepresented the company's financial health to potential lenders. Jerabeck claimed Guck and Tyler "were attempting to secure additional financing for the company through the provision of a false number... to prospective lenders and investors and pressuring me to participate in their misconduct."

Jerabeck specifically stated they pushed him to report earnings before interest, taxes, depreciation, and amortization (EBITDA) at $5 million. The actual figure, he asserted, was closer to $2 million. He further alleged that 5Linx used his signature stamp without authorization on credit applications at "numerous financial institutions," despite his objections to the inflated EBITDA numbers.

Guck and Tyler rejected the fraud claims. In an affidavit, Guck insisted they genuinely believed an EBITDA figure between $4 million and $5 million was achievable for the year. He stated that Jerabeck held a "much bleaker perspective on the company's cash flow" and favored a lower EBITDA number for 2015. Guck also disagreed with Jerabeck's assertion that 5Linx "was not making any money."

Falsifying financial information on formal credit applications carries significant legal risks. Companies found to have engaged in such practices can face civil litigation from defrauded lenders. Federal criminal charges, often brought by agencies like the FBI or the Department of Justice, are also possible, depending on the scale and intent of the misrepresentation.

Jerabeck's attorney informed the Democrat & Chronicle that his client will likely appeal portions of Justice Rosenbaum's ruling which claim Jerabeck violated his contract.