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Just one more reason for AOL to dig for gold.
In a bizarre lawsuit that accuses AOL employees of forging signatures on legal documents and purchase orders, renowned bodybuilder and developer of the Cardio Cruiser Jake Steinfeld is suing AOL for breach of contract, unjust enrichment, fraud and failure to pay $295,000 in consulting and marketing fees, Google Watch has learned.
In a complaint filed in New York federal district court earlier this week, Steinfeld’s company Body by Jake alleges that AOL failed to pay Body by Jake after agreeing to promote Jake’s new book “I’ve Seen a Lot of Famous People Naked and They’ve Got Nothing on You!” on AOL.com.
Under the terms of two written agreements, Body by Jake agreed to provide consulting services to AOL. In exchange, AOL agreed to pay $595,000 to Body by Jake, crossmarket the book and host a contest on AOL.com. However, the complaint alleges, AOL never paid the agreed-upon sum and instead tried to dupe Body by Jake into accepting less money than it was owed.
The complaint says AOL eventually paid $300,000, but only after AOL employees forged the signature of Body by Jake’s representatives on contractual papers that changed the terms of the agreement.
Under AOL’s agreement with Body by Jake, AOL agreed to purchase 100,000 copies of Jake’s book. The complaint states that not only did AOL not purchase the books, but also forged purchase orders and presented those receipts to the plaintiff. 
When Body by Jake attempted to resolve these problems with AOL’s counsel in June 2006, AOL accused Body by Jake of conspiring with former AOL senior vice president Paul “Schmidi” Schmidman to defraud AOL.
In the complaint, Body by Jake says AOL’s lawyers accused Schmidman and Body by Jake of entering into a professional services agreement without AOL’s authorization.
“This lawsuit is based on unapproved actions taken by an employee who is no longer with the company,” said an AOL representative. “It involved a small marketing project that went beyond the original terms of the agreement and did not properly follow internal corporate procedures. AOL will contest the lawsuit, its allegations and its damage claims, which we believe to be unfounded and misdirected.”
Schmidman left AOL in summer 2006 and was recently named chief operating officer of CenterStaging Musical Productions, where he manages the company’s online portal, rehearsals.com. The terms of Schmidman’s departure from AOL are unclear.
Schmidman did not return several calls seeking comment.
While at AOL, Schmidman was reportedly involved with AOL’s Live 8 project, although that detail could not be confirmed. Live 8 aired in 2005 and was one of the Web’s most successful streaming events at the time, credited by some as reinvigorating the ailing portal.
Revealing advertising agreements
Body by Jake’s complaint against AOL also reveals some details about the latter’s advertising relationships. As part of the deal, AOL agreed to pay Body by Jake $1 for every 1,000 streams of at least 30 seconds of promotional video on an AOL-owned Web site.
AOL also agreed to pay 50 cents for every 1,000 unique visitors who viewed an AOL-owned site on which that video could be streamed or downloaded. What’s more, AOL was to pay Body by Jake 20 percent of the ancillary income and gross sales from advertising revenues derived by AOL from the book promotion.
Body by Jake alleges that AOL never disbursed those funds, either.
Can AOL control its employees?
“This is, at it’s core, not about AOL but about Paul Schmidman,” said an industry source who is familiar with the lawsuit. “He took matters into his own hands and has made claims about the scope of his work with the company in an improper and inaccurate way.”
But this lawsuit is only the most recent example of internal problems at AOL. In August, AOL’s CTO Maureen Govern left the company after members of her staff released customer search data on the Web.
AOL was also in the news this year when a customer wasn’t allowed to end his account with the dial-up provider. The customer recorded his conversation with an AOL call center employee who refused to let him end his service.
Two years prior, an AOL employee was charged with stealing the company’s 30 million name subscriber list and selling it to spammers.
**This article was updated to include comments from AOL and industry sources, and to provide background on AOL issues.