In November 1993, several years before Digital Lightwave went public, a Scientologist businessman named Brian Haney bought into the dream being sold by the company's CEO, fellow Scientologist Dr. Bryan Zwan. According to Haney, after an initial meeting with Zwan at his local Church of Scientology in Colombus, Ohio, he agreed to invest $5 million in Digital Lightwave in exchange for DIGL common stock and a 50% ownership stake in the company. He also agreed to assist Zwan in getting a multimillion dollar line of credit for the company.
Over the next year, Haney continued to pump money into Digital, as well as making generous donations to several Church of Scientology charities at the encouragement of Dr. Zwan. In June, 1994, he was even named as one of two corporate directors, the other director, of course, being Dr. Zwan. With the income-generating prospects for Digital's leading edge SONET technology being touted as putting the company on the fast track to being part of the ongoing high tech financial bonanza, it seemed that Haney's early investment in the company would pay off in spades -- until October, 1994, when Zwan informed Haney that their business relationship had suddenly hit a snag: the recent expulsion of Haney's wife, Linda, from the Church of Scientology.
According to Zwan, recalled Haney, he would either have to convince his wife to "repair" her relationship with the Church through an arcane ecclesiastical process known as "Steps A-E", or Haney would have to divorce Linda in order to continue doing business with Digital Lightwave.
Haney refused "to divorce his wife to please the Scientologists," and in January, 1995, Zwan told Haney that he could no longer remain a shareholder in Digital because of his wife's expulsion from the Church, and also predicted that the company would ultimately fail unless Haney pulled out his investment immediately. Zwan offered to buy out Haney's 50% ownership stake in the company for $2.5 million.
Believing that his entire $4.4 million investment in Digital was at risk, Haney agreed, and a contract granting Zwan the option to repurchase the shares for $2.5 million was drawn up in February. Although by this point he, too, had left the Church of Scientology, Haney remained on the board of directors. He also retained options that would come into play should Digital proceed with an Initial Public Offering, which Zwan repeatedly assured him was not going to happen, going so far as to describe the issue as "dead" in mid-1995.
Unbeknownst to Haney, however, at the same time that Zwan was predicting disaster for Digital to him, he was busily orchestrating the sale of options rights to other well-heeled investors, many of whom were also Scientologists.
In November, 1995, Digital Lightwave exercised the option to purchase Haney's remaining 4,900 shares for $800,522, with the additional $2.4 million to be paid to Haney at a later date.
In February, 1997, Digital Lightwave launched its IPO with an initial price of $12 per share. In his subsequent lawsuit against both the company and Zwan himself, Haney calculated the value of the shares that Zwan had "fraudulently acquired" from him, by providing Haney with misleading information, at over $230 million.
Haney first filed suit against Digital and Zwan in December, 1997. In July, 1998, he amended his suit to include other Digital Lightwave associates, including Scientologist and Zwan business partner Gerald Ellenburg, as well as Norton S. Karno, a California real estate magnate and former attorney to Scientology founder L. Ron Hubbard, who saw his investment in DIGL turn a handsome profit at the Initial Public Offering. The amended suit also named notorious high tech underwriter Credit Suisse First Boston.
After months of legal wrangling and some initial victories by Haney's legal team, the entire matter was resolved through a confidential settlement, but many questions remain.
Exactly what went on within the back offices of Digital Lightwave throughout Zwan's lengthy efforts to separate Haney from his ownership in the company?
What role was played by the Church of Scientology in the management of Digital Lightwave?
And just who is this Norton S. Karno, anyway?