Inside the Collapse of Artesian Builds: From $20,000,000 to Bankrupt

Inside the Collapse of Artesian Builds: From $20,000,000 to Bankrupt

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This is the biggest scam we've ever covered. This is insane. This ghost town of a warehouse is filled with active build tickets. Dozens of power supplies, video cards locked in cages. And there are several areas where it's as if it was frozen in time.

Build stations remain as in-progress worksites. Even the employees' drinks and lunch were left behind, and bins remain partially unpacked from a team that was once excited to move into this brand new multimillion dollar warehouse that was customized for them. The computers you're seeing, those are still due to customers today, including some who are probably watching this video right now. We got inside of the foreclosed Artesian builds offices and what turned out to be one of our biggest investigations yet as we try to unearth what went wrong for many of the customers who got screwed by artesian builds.

This video is brought to you by us and This is our most in-depth investigative journalism piece yet. And to commemorate the death of Artesian and our deep dive, we're launching a new limited edition PC component, skeletal shirt. This shirt is in our limited line of ultra shiny foil shirts, and we've only done a few shirts like this before. The new skeletal foil uses water cooling tubes, complete with terminating fittings and three-way junction splits to form an accurate rib cage.

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and help fund our next deep dive investigative journalism piece. Thank you for your support. Hopefully I don't get arrested.

I'm not doing anything wrong, but it's definitely not normal. Artesian builds went from being a robust, prebuilt PC manufacturer with two locations and 60 to 70 employees doing $20 million a year in revenue, to a bankrupt warehouse with over $1,000,000 of inventory still locked up and still owed to customers today. People who will never see the PCs they ordered and who will never get their RMA'd repair units that are stuck inside. The computers that were in here -- they had been sitting in here for months.

And that includes, again, repair units that existing customers sent in for repair with their personal files, work files, family photos, tax documents , anything like that, stuck, trapped on the systems, imprisoned, where they will never be able to get them back because all of it is being sold at auction. As for how any of that happens, how you go from 20 million a year in revenue to bankrupt? Well, a lot of that is because of this guy. And unfortunately, the follower count is extremely, extremely flat. Yeah. No, that's that's I know.

Is an ambassador giveaway. This is not for people that aren't taking streaming seriously. We need you to be promoting, frankly, yourself and us if we're giving you a free computer.

We run the contest. We make the rules. It's a slight change because we don't want to give because people that quit playing the game. This is an ambassador giveaway. And you've got to be collaborating with my company to get my free computers. Sponsored by Intel. Thanks, Intel. (Thanks, Steve)

Even though that now infamous live stream was an absolute trainwreck. It's not the only reason Artesian Builds went out of business. They were doomed a long time ago. And today we're going to be showing you the collapse of Artesian builds from the inside. This was one of their two old locations.

The last time we were here was one day after the implosion of our artesian builds. And now we're back to see how it's gone. The last time also was right when Artesian fired all of its staff via Twitter, without notice, publicly. That was how they found out that they lost their jobs. That -- that wasn't super-impo-- OK... Even with that expensive office build an artesian had every reason to make this work.

They were shipping upwards of 800 prebuilt computers every month. They went from doing $0 to $2.2 million in revenue in just two years.

By the third year in business, the year they shut down, they were doing 20 million in revenue. They were on track for 30 million of revenue in the fourth year up until CEO Noah Katz ran it into the ground today. Then Artesian Build still owes about 800 builds and about $1.8 million to its customers. And that's not counting whatever it or its owners will owe once the pending lawsuits conclude. When we were investigating this, we found that about a dozen or so former employees noted to us that they had not received the entirety of their last paycheck .

And we also are aware of at least one active lawsuit currently being taken against Artesian Builds or its owner, who now has to navigate the waters of making sure he hasn't accidentally pierced the corporate veil somewhere. So that brings us to just some of the indicators of where the troubles lie with our artesian and builds at this point. But there are many more, and not all of them are purely personnel and they are issues. We should probably start by saying how we got into the warehouse.

Since we've already heard that Noah Katz apparently wants to sue us for defamation, among other things, as if we're the ones who said this with a record of zero purchases and a falling off following, we're going to be redrawing this name. Or who said this? Oh, I'm a Dumbo or did this. It was all above board. We contacted the brokers and by proxy, the landlord, and they were more than happy to accommodate us. And if you guys can just like make sure you if it's okay with you, if you guys can just make sure you're either photographing or videoing the inside of the place as soon as we can. Yes. You appreciate it. Pictures and stuff.

Okay. Well, this is especially because artesian shut down within days of moving into and occupying the new space, leaving the landlord and the brokers without a tenant after a lot of customization and months of work and construction went into it. So it's not much of a surprise that they were happy to talk to us about their former or would be tenant.

And we also got information from staff and from companies slack logs, which included information from Noah himself, from the Slack logs. So let's talk about what really went wrong when the former CEO wasn't busy going out of business and leaving landlords without a tenant, he could be found recalling pay from contractors and employees, putting them into debt in their personal PayPal accounts. And what seems to those of us who aren't lawyers to be fraudulent or potentially illegal. We'll come back to the more serious evidence like this that we've accumulated a little bit later. Artesian was run by an eccentric man with unique tastes.

He modified the small form factor case by allegedly purchasing real dinosaur bones and arts and crafts, gluing them to the chassis and what was supposed to bring to life this render of a dinosaur bone case commissioned from an artist. Now, that's not quite as unique as the $300,000 Tyrannosaurus skull used and marketing attempts to customize builds. But it's still pretty unique. Artesian was a company that found more success in its core PC building business than it knew what to do with mostly built on the back of its unfortunate team. And yet, instead of focusing on getting pieces out the door, it tirelessly tried to expand into irrelevant categories. The company played with selling home goods like cheesecakes ordered direct to consumer jigsaw puzzles of PCs, cutting boards and slippers, painting a picture of a company run by lost leadership unaware of the unthinkable success it had already inadvertently stumbled into.

And the leadership wasn't only lost and bizarre home goods. Its founder and CEO is also obsessed with the idea of Internet fame and celebrity. This is something we experienced firsthand and entirely inappropriately when trying to interview him about the downfall of his company in the days before it closed. I'm an influencer. I'm also an executive.

And don't just take our word for it. In the company's internal slack. When employees were begging the CEO to please apologize for dismissing and disrespecting smaller creators, he made statements like these when confronted by employees that publicly disrespecting the free market. Investors whom Artesian referred to as Ambassador Cats said to his staff, Wait, what? They're my buddies. What the fuck? If they aren't, that's the whole problem. That's the whole problem, guys.

Am I not being clear? In the internal server, he continued, stating, quote, I. Literally built this brand to be their friends. That's the whole point of being live. I want them all to know me. This aligns with the other actions Artesian took. Katz's personal assistant, for example, stated in the company's slack that during a fiery debate with the CEO that views on SUVs were purchased.

We later learned from the staff that this was during West Coast builds going live. Particularly the CEOs or other people close to him. For all of the public issues that we already know about, like insulting smaller creators who are doing free marketing for our teams and for the chance to maybe want a PC if they're popular enough . There were more issues internally that weren't revealed really until we started digging into them.

So the first person, of course, who knew about the company's impending demise was CEO Noah Katz. This is not a surprise. And in the final days of our season's life, the CEO set to withdraw an approximately $10,000 from the company's PayPal account. And this is information that we have verified through bankruptcy hearing records that are filed with the court that we were able to obtain.

So with the walls closing in around him, the CEO began clawing back money that was paid to contractors and staff in every way possible. A former staff member named Abby is currently in debt 30 900 GBP on her PayPal account, or about $4,700 U.S.. This is because what was left of artesian or artesian futures or whatever it is now. Recall that all payments made to her during the tumultuous downfall of the company.

PayPal sided with Katz because of the company's size, probably, and presumably because they didn't know that it was going under. And because Abbi doesn't know anyone who really works at PayPal, she's kind of screwed. She's in the UK.

She's not able to really feasibly. Sue Katz, who likely has no money left anyway. PayPal would be the only avenue the PayPal cases show to dispute one for $2,965 or so US and one for $2,570 US.

We obtained the text logs between Abby and Katz, where Katz, shown on the left is told that with the CEO Nick having departed, Abby will need to send the invoice to him. This all happened in December. Katz pays the amount in December of 2021, well before the collapse, and the thread revives in May of 2022, after everyone had already been publicly fired. Abby kindly suggests probably to kindly that the text thread serves as evidence for the dispute and asks Katz to keep things amicable at the end.

He refers Abby to his lawyers, and just for the record, we have emailed the CEO's lawyers for comment, but at this time at least the film and we haven't heard back. Now, this isn't the only charge. Back at one time, especially early in the year, artesian billed was in desperate need of GPUs in order to complete build that were partially assembled but could not ship due to the GPU shortage.

And this will build into a much bigger issue that we'll get to later on where the company had upwards of millions of dollars of inventory, which we verified on the balance sheet, sitting, waiting to ship and unable to because it was missing a GPU. So the company ties up all this money and all these builds and cannot actually ship them, creating just a massive liability sheet. So as a result of this, artesian started seeking GPUs from employees and from eBay because they needed them to sell the actual built. There's nothing inherently wrong with buying the GPU from an employee of the company. If the company and the employee come to an agreement about it, that's completely fine. The problem is the payment of it.

And by the way, there is also mining pieces being sold from AB mining, but that's a later story. One particular employee paid about $1,120 USD for the 3070 ty and then sold it to his employer Artesian Build, which then went on to sell the GPU in a build upgrade for 1500 dollars at the company. So they did while they made some money on it in May of 2022, cats or whoever is handling his finances at this point.

Challenge to the transaction on PayPal and claims to PayPal that the transaction was fraud. That's ironic. PayPal sided in favor of Artesian and Katz or his money managers once again and clawed back the money from the former employee who is now short both a GPU and $1,120. In another scenario that was similar, artesian builds previously purchased the GPU from one of our viewers on eBay and that viewer sent us all this documentation. This order was placed in January of 2022 for an RTX, 3080 TI priced at $2,250 at the time, the order was shipped to Artisan's West Coast warehouse and it wasn't assured, meaning that there was a signature of receipt.

If you look at the receipt, which we have, it was actually purchased by a be mining or artesian builds mining making this potentially even scam here. The dispute was filed on May 25th, meaning it was four months. After receipt of the GPU. So the GPU is long gone at this point. The reason provided is quote, Buyer did not recognize the transaction, so he filed it as fraud.

Upon further investigation and to vet the source, we also obtained official USPS government documentation noting the delivery of the products to our teams and billed as certified by the US government's postal service. The money mismanagement didn't stop there. Katz handed down a command from legal to halt all refunds to customers, and this was a knee jerk reaction to the streaming mishap. So as people were canceling orders or backing out because of what happened on Livestream, Artesian took a stance of no refunds, or at least as directed by Noah Katz and whoever legal is.

We're not lawyers here, but blanket denying refunds as a knee jerk reaction does, in my opinion, seem potentially fraudulent. As for why these potentially illegal decisions were made, that's best explained by looking at the company's balance sheet that we dug up at the time of demise. Artesian Builds had about $2.1 million in assets, mostly inventory assets. So PC parts that would go on to build that either have already been sold and are pending ship in or IPO or will be sold in the future.

This was contrasted starkly by the liabilities section of the balance sheet listed at $4.1 million and the final full operating month of that 4.1 million $853,000 was claimed as a, quote, loan payable to family. And that would actually be Katz's parents here. This later claims to an alleged $1.2 million, even just as the company went under.

And given that Katz's parents are secured creditors. The sudden increase in the loan puts them in line to get repaid during the bankruptcy proceedings. Meanwhile, customers who bought on debit or who didn't file chargebacks will be behind the parents, in line, behind potentially former employees, behind institutions and suppliers, basically behind anybody who is filing a lawsuit. And the reason people who filed chargebacks might get some money back is because you are now lumped in with a secured creditor like a bank . If you look at footnote seven on the balance sheet, you'll see a quarter million dollar adjustment to the owners investment in the closing month of the books alongside another footnote that says Increase the loan from insiders.

So that'd be the parents. We don't want to get too derailed by this part of the story. But just for some context, Katz's parents were deeply invested in the company, both financially, but they also were involved at some level in management, so they would communicate regularly with other C-suite employees to see how people in that sort of position and with the lower ranking employees in the company, and they were involved in daily operations by sending lengthy messages to and from employees and just us reading over the messages in the logs, it became clear to us that there was a culture problem within the company of general disrespect between all parties. So this might fall largely on the CEO and the parental advisors. We can't be 100% sure of how the blame is sort of shifted there. But regardless of where that culture originated, ultimately we did see a lot of mutual disrespect in the messages that were shared with us from a company Slack server between basically staff on one side and CEO on the other.

And that's just not conducive to ever running a successful company. And for that reason we think it was probably doomed long before the stream. Now we could keep going on about this generally sort of scummy behavior in our opinions and about things like when the CEO and the company Slack was shocked that anyone would curse him or artesian after it had insulted people based on their follower account or when the crackdown on staff happened after the streaming mishap.

But you all get the point. All of this stuff we've been over so far, it's bad. It's pretty damning. But this was all stuff that happened more or less after or towards the end of the collapse of the company. And so we still need to look at what led up to it and cause that collapse.

Other other than the person running it, which at this point, given the behavior is probably enough. But there's more. And then we get into the power struggle between the East Coast and West Coast branches of artesian built. The East Coast was run largely autonomously.

It had the operations team in it, including the CEO and other people in operations and warehousing who could largely run the show on their own. The West Coast was run directly by the CEO who resided and worked there. And in terms of staff, our understanding is that the Artesian Build split was about 2 to 1 staff on the West Coast to the East Coast, meaning the West Coast had more staff at any given time than the East Coast.

Based on what we've been informed. So there were about 3 to 4 employees building pieces on the East Coast and with these staff members for building, not counting support, warehousing, logistics, people in the C-suite for operations or marketing or whatever. Not counting any of those supporting roles, only building pieces. The East Coast branch was capable of building about 20 to 31 systems a day, depending on the complexity of the systems being built that day. And that was with its four builders, the West Coast, for comparison, from what we understand, was built in about 3 to 4 a day, and yet it had significantly more staff and you start to see some of the unraveling here.

So our investigation revealed that the company, as of its demise, had about 615 or so builds cued for the East Coast, which is clear of all within a month if they had supply available and didn't go bankrupt. And that's based on information we've collected from former employees. And this warehouse was the one that handled the bulk of the orders and had the most refined processes. There were an additional 170 to 180 builds queued at the West Coast warehouse located in Oakland. That's also where more of the streamer and influencer builds were prepped. And here's where the problems start.

This was revealed in our investigation. This image shows the company's to do list for the West Coast warehouse nearing sort of the end months of our. You can see that the West Coast had about three builds per day scheduled, including one for a streamer listed at the bottom.

These were the types of builds that Artesian CEO wanted to personally work on. And what we think becomes a trend of attempts to associate with the concept of Internet celebrity. And these were what the West Coast handle.

Now they also handle customer built so normal builds that weren't supposed to be special ones. And the way it was supposed to be set up is that the West Coast would handle builds for people closer to California. And the East Coast was supposed to be for handling builds on the East Coast because it drives down logistics costs and people get stuff faster. That's the way it's supposed to work. So then back to the image.

This is what the West Coast had to do on this particular Wednesday. And this is what the East Coast division had to do on its Wednesday for the same date. It doesn't even fit on the page.

So this branch, it printed money for artesian by all accounts we could collect. The picture being painted here is one of two autonomously operated arms of the same company with little collective or collaborative action being taken between them in interviewing team members from both locations. We got a strong sense of an East versus West mentality within the same company, and as we spoke with the staff members from the two branches, you could start to see where some of the division arose. It can be healthy and useful or productive to have a somewhat competitive mindset internally, but it has to be managed well by managers, by people higher up to ensure that it doesn't devolve into just toxicity and a backstabbing environment. That I am certain that some of our viewers who've worked in corporate, large corporate environments especially probably are all too familiar with where it goes from feeling like you're on a team to starting to feel like you have to watch your back. For someone who wants whatever your job, your window, cubicle, whatever, it may be so easy for that to really go off the rails and create a much worse situation that needs to exist.

Now, as for why it devolved into a competitive mindset, instead of turning it into a collaborative one, well, this image explains that pretty well. This is the quality of build we were told would get delivered between the warehouses. What you're looking at is the PC build for Streamer and Nick Mercs shows how it was initially built and shipped from the West Coast branch where the CEO directly worked on these built the West Coast would build the celebrity builds often on stream and often done by the CEO and maybe one other builder. And then the East Coast would beg the West Coast branch to ship them the builds for a final once over in this nick mercs build. That's exactly what happened.

The East Coast branch handled the final packing and distribution of the system, and when it arrived from the West Coast, the lower level East Coast employees immediately set to work fixing the cabling mess that was delivered for the system. It was going to be one of the. Largest collaborations with a streamer they'd ever done, so they wanted it to look like it was built well.

Artesian CEO wasn't particularly fond of Nick Mercs and the crew anyway, and we're also curious if Nick Mercs knows that Cath referred to their paid partnership as, quote, Ransom. As for why these decisions to rework pieces happened in the first place, it's because of a difference in the escape rate or the rate of army units or defects that escape one warehouse versus another. We were told that the normal escape rate for the West Coast was approaching 10%, meaning 10% of the product leaving would have some form of defect and even need a replacement, a refund or to be shipped back for repair. And the East Coast escape rate was less than 1%, typically floating in the 0.3 2.5% range. So there's clearly an issue with operations between the two branches. They clearly were not following the same set of procedures.

And this is what ultimately led to artisan burning large amounts of money, really for no reason, because you have two groups of people doing the same work. One is basically just going over the work that the other one had already immediately completed. And that's where we think other than the other financial mismanagement that we talked about earlier.

A large portion of the money was being spent in a way that isn't necessarily immediately obvious, day to day. Until you zoom out. The biggest ongoing liability though was builds awaiting a you.

Artesian had many outstanding builds either partially complete waiting to be even started or just generally unfulfilled orders. Artesian would collect money for the order as is normal and then fulfill it when complete. But it had unknown timelines sometimes for years, and this could lead to short term liabilities stacking up as the orders could be canceled at any time, even though the money had been taken and potentially already recommitted to the business.

Artesian would regularly send its warehouse team to purchase GPUs at full retail price or even scalped on stock acts just to get the land back ordered builds out the door before the customer might cancel it. This reduced margin. But it was better than allowing the build time and the build itself to go to waste. So Artesian ended up stuck in a dangerous business cycle that a lot of businesses that go out of business find themselves in, where it was perpetually trying to chase the completion of old orders, which have been long paid for and that money has probably been spent. So it doesn't feel like they're making money anymore with selling new orders. So you're chasing old money with new.

What's starts to sound like something else. And the problem is what we got, which is a collapse, but because our attention was constantly chasing that new money instead of, first of all, filling those already paid for orders due to limitations, it was reallocating and bound GB supply all the time. This included it being reallocated away, as we understand, from backlog to orders and instead into new promotions. Artisan's Leadership What heads about allocation to builds versus allocations to acquiring new sales? They would also reallocate supply already for streamer and celebrity build as the GPUs arrived, rather than necessarily just selling them all to fulfilling orders.

So our teams and other managers would push for the opposite. They would sometimes push for fulfilling the orders instead of chasing new customer acquisition. We have a lot more documentation and evidence we could share of this fascinating story.

But this piece is long enough at this point, and at the end of all of this, you're really left with just a few key points. One of those is that artesian builds is now gone. It's been through bankruptcy proceedings, and the company has reformed as a new entity, which is something like Artesian Future Technologies. This is a normal bankruptcy procedure where the assets reform into a single asset. And so artesian bills itself as we know it is finished and all of its assets have been or are being auctioned off at this point.

And the company was run by a man who we think was obsessed with becoming Internet famous and with the idea of Internet celebrity. And he's achieved that. So kudos to him. But it was at the tragic loss of. A company that was a dream job for a lot of its staff, and it was at the sacrifice of a $20 million a year business in just its first couple of years of operation. That's insane. And these sacrifices were made at every opportunity to build the next twitch celebrity gaming PC.

From what we've observed, the company had a team of talented people working for it on both coasts, particularly in the management teams and operations who managed to keep things going in spite of the completely misaligned goals. But at least in the company's later months, there was a clear mutual disrespect between the CEO and his closest assigns and the rest of the company, if not also between the two coasts or branches. So this is not something that can be overcome.

Everybody in the company has to work with each other in a respectful way. The company was imploding long before the stream that you're seeing again now, and most of that implosion was fueled by a constant pursuit of money without matching it to the same pursuit of building and shipping a good product. This leaves customers screwed and internal staff frustrated with what could have been.

And with the cleanup work they're having to do behind their own CEO or behind the entire branch on the other coast. And that's not to speak of other communication issues, like the changes that the CEO made overnight or as close as the signs on the West Coast to the website, the promotions, GPOs supply shifting within the company. This wasn't communicated with the company as we understand it, until they woke up and saw it in the morning until the customer service reps started getting emails from customers and ambassadors asking what's going on? And they have to first go to the CEO to ask because it hasn't been communicated to them. This erratic and privileged behavior was fueled by a belief that the money and the GPAs that artesian had oversold would just keep coming in.

By all accounts, we received this team absolutely loved its local team mates between each branch and the jobs they had, with several of them telling us it was a dream job. The financial and reputational damage, though, was irreparable without replacing the CEO himself, and with that likely a lot of the staff between both coasts. As for what's happening now for the CEO of Artesian Builds and everyone left, well, some of the group from the East Coast office has now split off to form their own new company called Phenix Packs. And for Mr.

Katz, he has changed his name and is dealing with numerous lawsuits from multiple different types of parties. And it's likely we haven't heard the end of this story just yet. So our biggest concern out of all of this at this point has been for the consumers who got shafted and those who are left with absolutely no recourse, especially if bought on debit. And if you couldn't get into the chargebacks for institutions or for secured creditors.

So the irresponsible behavior of artesian billed as a company, not just the CEO, but also the CEO specifically, have led to upwards of thousands of dollars of losses for each person who had a computer on purchase, who waiting for a computer. And again, there's even bills that were in there for remedies and repairs that won't make it back. So it's tragic as a story.

But again, we'll be back with some more on this sometime in the future. So thanks for watching and support this type of work. By going to store it, I can access dot net.

You can grab one of our new shirts which are limited, or you can pick up something like a PC building tool kit, a mouse mat, mod mat or other items. And you can also go to patriotic homicides, gamers and access for behind the scenes videos and to support our reporting. Thanks for watching and we'll see you all next time.

2022-07-12 18:31

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