By Ryan Randazzo and Derek Gilliam, Sarasota Herald-Tribune, Jan 7, 2022.
Cyber Ninjas, the Sarasota cybersecurity company that conducted a highly contested election audit in Arizona, has closed and laid off its employees, according to the company’s former CEO.
News of the development came as a judge issued an order Thursday finding the company in contempt of court and imposing a fine of $50,000 a day for its failure to produce records requested by The Arizona Republic newspaper.
Company founder Doug Logan on Friday confirmed the shutdown, but said it wasn’t because of the fines, pointing instead to cash flow issues.
He notified the remaining four employees — down from eight when the audit started last year in Maricopa County, Arizona — of the decision to close the business the first week of December.
“Yes, we closed our doors and laid off our employees,” he said. “No. It did not have anything to do with what happened yesterday.”
The employees were laid off on Jan. 1 and will have health insurance through the month, he said.
Part of Cyber Ninjas‘ cash flow problems, Logan said, stemmed from the Arizona Senate not adhering to the contract signed when it hired the company to conduct the audit. Logan said the company was never fully paid for the audit nor did the Senate indemnify the company as was required by the company’s contract.
Logan, who has said he moved the company from Bloomington, Indiana, to Sarasota in 2014, said the audit produced a $2.1 million loss on Cyber Ninjas’ books and that the company still owes $1.9 million to subcontractors.
The Cyber Ninjas has said it received about $5.7 million from private, pro-Trump groups for the audit, including $3.2 million from The America Project, led by former Overstock CEO Patrick Byrne who owns millions in Sarasota property. In addition, Logan paid off a mortgage on his home of more than $400,000 in just four years in January of 2021.
Logan said the fact that his home was paid off had no bearing on the company’s finances, and that he simply sold a condo that allowed him to make the last payment on that mortgage.
“I’ve had a 25-year goal of owning my house debt free, and I busted my butt to make it happen,” he said. “I am so sick of these arguments trying to imply its because I broke the law and it was from PPP loans, or Patrick Byrne paid it off, or any other nonsense.”
What’s next for Cyber Ninjas?
Logan declined to say whether Cyber Ninjas would file for bankruptcy. He also noted his company does not have the capability to pay such a large fine nor to comply with a public records request he said would require a substantial number of hours to produce.
Maricopa Superior Judge John Hannah ordered the company to pay $50,000 per day until it turns over public records from an elections audit to The Arizona Republic. (The Republic is owned by Gannett, the parent company of the Herald-Tribune.)
Cyber Ninjas was hired by the Arizona Senate to conduct a review of the Maricopa County election. The Republic sued Cyber Ninjas and the Arizona Senate last June for records and, after months of litigation, asked for sanctions against the company of $1,000 a day. Hannah ruled that the company’s noncompliance was worth 50 times that amount.
During a contentious two-hour hearing, Hannah found Cyber Ninjas in contempt of his order from Aug. 24 ordering the company to turn over emails, text messages and other documents sought by The Republic.
“It is lucidly clear on this record that Cyber Ninjas has disregarded that order,” Hannah said. “I don’t think I have to find Cyber Ninjas is not acting in good faith. All I have to do is find they are not complying, and their noncompliance is not based on good faith and reasonable interpretation of the order. I think the variety of creative positions Cyber Ninjas has taken to avoid compliance with this order speaks for itself.”
Hannah said the sanctions needed to be high enough to incentivize the company to comply with the order, and they are “intended to be coercive, but not punitive.”
But he also said he wanted to “put Cyber Ninjas on notice” and if the company still doesn’t comply, he would issue orders directly against the individuals responsible for providing the records.
“Our goal here is not to get sanctions, it is to get documents,” The Republic’s attorney Craig Hoffman said at the hearing.
Doug Logan on the Cyber Ninjas’ court ruling
Logan called the $50,000-a-day fine “ridiculous” and, echoing comments from the company’s attorney in court, further evidence of a “very, very biased judge.” Logan pointed to the date of the hearing and saying he didn’t believe it was a coincidence that the judge chose Jan. 6, the one-year anniversary of the day President Donald Trump’s supporters stormed the U.S. Capitol. He also said he felt the judge had had knowledge about other Cyber Ninja court cases that he should not be researching if he was not biased against the company.
Logan’s company drew the spotlight after it was selected to conduct the audit of Maricopa County ballots without having any prior experience in the field. In September, the company’s report reaffirmed Joe Biden’s win in the state’s largest county, in fact finding a few more votes for him and a few less for Donald Trump.
The latest judge’s ruling came three days after the Arizona Court of Appeals awarded The Republic more than $31,000 in legal fees to be paid by Cyber Ninjas following Cyber Ninjas’ failed appeal of the lower court decision.
Cyber Ninjas’ lawyer Jack Wilenchik tried to remove himself as the firm’s attorney at Thursday’s hearing, telling the judge he has not been paid, but Hannah would not allow it.
Wilenchik also said Doug Logan is now the “former” CEO of Cyber Ninjas and that the company had laid off its workers.
Hannah said that “adds to the body of facts suggesting here that there is an intention to leave the Cyber Ninjas entity as an empty piñata for all of us to swing at.”
When he issued his order, he reiterated that point.
“The court is not going to accept the assertion that Cyber Ninjas is an empty shell and that nobody is responsible for seeing that it complies,” Hannah said.
Wilenchik got emotional in his pleas to be released from the case.
“I’m trying to work here and make a living,” Wilenchik said.
But Hannah said the stakes of the case were too high to release him without a replacement.
“I do not believe I’ve had a more important case in the 16 years I’ve been on the bench,” Hannah said.
Wilenchik also asked to be excused from a similar case filed by the left-leaning watchdog group American Oversight, which also sued the Senate for records from the election review.
Cyber Ninjas was made a party to that case, but like Hannah, the judge in that case, Michael Kemp, denied Wilenchik’s request on Thursday, forcing him to continue working on that litigation as well.
“The Court will not consider granting a withdrawal until, at a minimum, the public records have been turned over to the Senate Defendants and CEO Doug Logan has been deposed,” Kemp wrote in a Thursday decision.
Much like Hannah, Kemp said it wouldn’t cost the law firm much of anything to comply with the orders to turn over records.
“There are no significant legal services necessary for counsel to oversee the transfer of public records to the Senate defendants and be present for the deposition of Doug Logan,” Kemp wrote.
Judge to attorney: ‘You are trolling me’
Cyber Ninjas had two out-of-state lawyers in Thursday’s hearing who plan to represent the company and are looking for a local replacement to Wilenchik.
Wilenchik said it was “in limbo” whether Cyber Ninjas would file for bankruptcy.
“There’s nobody to pay me,” he pleaded with Hannah, before accusing the judge of being biased against him. “That’s just not the way the world of lawyers works, OK. I need to make a living.”
Then in an awkward exchange, Wilenchik accused the judge of smiling while Wilenchik complained about the decision.
“I’m smiling because I’m thinking of the accusations against me that you made in the motion to recuse me for cause that you did not appeal,” Hannah said. “Where you said I’m biased against conservatives and on information and belief a Democrat. I smile every time I think about it because I’m not a Democrat.”
Wilenchik continued to question Hannah’s decisions throughout the hearing, contending the judge’s August ruling didn’t actually order Cyber Ninjas to turn over records, so therefore the company couldn’t be held in contempt.
When Hannah announced his decision Thursday to hold Cyber Ninjas in contempt for not obeying the order, Wilenchik asked him “What order are you referring to?”
“Mr. Wilenchik you’re, you really, you are trolling me, and it’s getting very close to direct contempt,” Hannah said.
Wilenchik asked the Arizona Supreme Court on Thursday to halt Hannah’s orders, but the court denied his motion.
Just a day prior, the Supreme Court denied a motion to review from Cyber Ninjas. The Supreme court on Thursday said in its denial that Cyber Ninjas could seek relief at the Arizona Court of Appeals.
What records were released so far
The Senate has turned over thousands of records from the audit in response to requests through the Arizona Public Records Law but continues to fight to withhold some documents under legislative privilege.
Cyber Ninjas has turned some records over to the Senate, but it remains unclear how many documents the company still has related to the audit that are subject to court orders.
At one point in the months-long case, the company suggested it might have 60,000 responsive documents.
Arizona Senate President Karen Fann, R-Prescott, who was in charge of the election review, wrote to Cyber Ninjas in September after the Supreme Court declined to intervene, and asked the company to turn over its records.
Cyber Ninjas previously suggested to the court that the plaintiffs should pay the federal rate for producing public records and that it would cost $65,000 to $70,000 to get the company to provide the records.
Hannah said that expense was not allowed under Arizona’s Public Records Law and that furthermore, the company’s suggestion of such a cost indicates there are many more records to provide that are subject to the records law.
He said the company could turn the records over to the Senate with little effort or cost and allow the Senate to determine what gets released to the public.
Herald-Tribune Staff Writer Derek Gilliam contributed to this report.
Image Credits: Benjamin Chambers/The Republic