Provo multilevel company shuts down, sues CEO for alleged mismanagement, self-dealing

Wake Up Now • Former CEO is sued for millions, yet he's filed for personal bankruptcy.
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A Provo company has shut down its multilevel-marketing operations and sued its former chief executive, alleging he ran the company into the ground by taking almost total control and using his powers to "suck 100 percent of the profit" from the operation while enjoying a lavish lifestyle.

Meanwhile, Kirby Cochran, the former CEO of Wake Up Now, has filed for personal bankruptcy, listing up to $500 million in debt.

The company, which trades shares over the counter, has said it had tens of thousands of distributors and took in $12.1 million in revenue in 2013. But, according to its last financial filing, Wake Up Now lost $1.5 million in the first six months of 2014, the last report it made, and had a $4.55 million deficit in 2013.

The company, founded in 2009, sells software for language learning, personal finance management, online protection and expense tracking, as well as an nutritional supplements and an energy drink. Under its multilevel-marketing business plan, the company sold its products to independent distributors, who earned commissions by recruiting new distributors who, in turn, were encouraged to recruit others into the network.

Current CEO Philip Polich said in a blog post Monday that the actions of Cochran, who was fired late last year, "put the company in a position from which it could not recover" and that Wake Up Now was ceasing all networking operations while still selling some of its products. No one answered phones at the company's offices Wednesday.

Cochran said Wednesday he plans to file counter-claims against the company and will "vigorously contest" allegations of self-dealing and mismanagement.

"I have been a successful entrepreneur, leader and teacher in our business community for several decades," Cochran said in a statement emailed by his attorneys. "This lawsuit, which has been filed against me and others, lacks merit and the complaint contains multiple inaccuracies."

The lawsuit, which also names three members of Cochran's family, a company called Global Connection Network and others, says Cochran acted as a middleman in taking the company public in 2011 through a shell company in which his brother had secretly purchased shares. Then he gained control over 6.4 million shares held by company founder Troy Muhlestein.

Cochran persuaded one of his students at the University of Utah, where he is an adjunct finance professor, to create a company to hold the shares so they were not traceable to him, according to the lawsuit filed in 4th District Court in Utah County.

Cochran also talked Polich into investing $1 million by falsely claiming he personally had already put in $1.5 million and failing to disclose his secret control of Muhlestein's shares, the lawsuit alleges. Cochran then persuaded the board to appoint him CEO in August 2011 by claiming he could raise millions of dollars for the company.

After gaining control, Cochran pushed out board members, including Muhlestein, employees and management members who opposed him, then stopped holding shareholder meetings.

Facing $1 million in judgments from lawsuits concerning other companies and a threat of a lawsuit from a bankruptcy trustee, Cochran took only a minimum-wage salary but had the company pay tens of thousands of dollars of his credit card charges, including for personal expenses, the lawsuit alleges.

In addition, he arranged for Wake Up Now to pay the company his student had created — but which he controlled — a fee of $4 per month for each active distributor, the complaint says.

"At no time has WUN's profit exceeded $4 per active salesperson per month, meaning that Kirby Cochran masterminded a contract to suck 100 percent of the profits from WUN into his secret nominee," the lawsuit claims.

Cochran also replaced the company's software system with one that didn't work in what turned out to be a disaster that caused Wake Up Now to start laying off employees.

"About that time," the suit alleges, "he berated another employee tasked with preparing his daily smoothie for neglecting to include carrots in the mixture."

Shareholders voted to fire Cochran on Sept. 27, 2014.

The lawsuit demands at least $10.5 million from Cochran and the others named in the suit. But Cochran's bankruptcy filing Feb. 4 lists debts of up to $500 million and assets of no more than $50,000.

Cochran also was sued last year by a trustee appointed to take over a company of which he was previously CEO, Castle Arch Real Estate Investment Co., and related entities. It alleges the companies raised $73 million from investors and then recklessly spent money on land and developments, even as the real estate market was collapsing around 2006 while paying executives handsomely.

tharvey@sltrib.com