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(This story has been updated with company response, and a copy of a leaked memo from an investor alarmed about mismanagement at the company)

Pay By Touch’s founder John Rogers had big dreams of changing the way people paid for things.

He raised hundreds of millions two years ago from investors, and promised he would let poeple pay with their fingerprint in stores across the nation.

But now Rogers is filing for personal bankruptcy, and there’s question the company may be in financial trouble.

The company isn’t responding to requests for comment. [Update: The company has responded, below.]

Two years ago, Pay By Touch roared on to the scene, boasting it was going to change the way people by their groceries and other items. It had technology it would sell to major grocery store chains, letting them pay for goods using a touch of their finger. I remember talking with the company, and being surprised by its boldness — it raised a whopping $190 million in financing (see our original coverage) and was vowing to change people’s habits, and quickly.

The company promised me then it would launch in stores across the country, including in California by last year — but it didn’t happen.

The San Francisco Business Times has the report about Rogers’ problems, and says four employees are seeking $60,000 or more in back pay, and are trying to force the company into bankruptcy.

Rogers owns two thirds of the company, and was able to maintain special voting rights, we’re told by sources — meaning that nobody could overrule him. But apparently his past is catching up with him.

He is reportedly a convicted felon.

[Update: The papers say "felon," and while commenter below is right to ask why breaking property valued in "excess of $500" is a felon, we assume there's more to it than that.]

[Update II: The company has responded, and says that the felon was converted to a misdemeanor, although we haven't seen proof of this. We've published the entire company response below.]

Rogers has a troubled history (more here). Investors who arranged a $163 million loan for the company are suing.

[Update III: We've received a copy of a memo that was sent in june by a Pay By Touch investor to other investors, describing with alarm how the company appeared to be mismanaged.]

Who were the investors supposed to be minding the store? Mobius Venture Capital, the Getty family, and Global Trust Ventures, New York-based hedge fund Och-Ziff Capital Management, Farallon Capital Management, Plainfield Asset Management, Ron Burkle, founder and managing partner of Yucaipa Cos, Rembrandt Ventures and Mario Lemieux, co-owner of the Pittsburgh Penguins hockey team. In other words, too many players for anyone to really care or take the lead (remember Amp’d Mobile, which had 20 board members, and which filed for bankruptcy?), leaving the founder alone to fill the void.

Mobius is the only classical venture firm involved. That firm was already on the ropes for performing badly, and has announced it isn’t raising a new fund.

At the outset, when we first wrote about Pay By Touch, we said at that time the company had been clever –raising money from hedge funds that had plenty of cash rolling around at the time. Rogers had said then that he expected to file for an IPO within 18 months (that hasn’t happened). Things got weird when the company started buying up other companies (our coverage), including even companies like Green Stamps, which was a customer loyalty program that had nothing to do with fingerprint payments. That’s when we really started asking questions, and never heard back from the company about why it still wasn’t in California stories. We contacted the company early this morning for comment about this, and we haven’t heard anything back.

Here’s the company’s response, in its entirety:

Matt,

I think the following answers your questions:

On November 1 2007, an involuntary petition under Chapter 11 of the bankruptcy statute was filed against Solidus Networks, Inc. Our reply must be filed within twenty days following service of the petition upon the Company, and we are currently considering our response.

In the meantime, we continue to move forward with our innovative products, services and programs. In fact, we just successfully launched the world’s first biometrically-authenticated pay-at-the-pump system at 10 gas stations in Chicago. With these and our new personalized marketing products leading the way, we continue to believe in the value and power of our solutions and business proposition.

The acquisition of S&H Greenpoints has helped us develop and launch SmartShop, a personalized marketing solution that delivers customized offers to shoppers from a kiosk as they enter a store. It’s been amazingly successful! In fact, in the first two weeks that SmartShop was launched at Dorothy Lane Markets in Ohio:

• SmartShop was used in transactions totaling 24% of sales.
• There is a 26% average redemption rate with SmartShop, as opposed to a 0.6% average redemption rate on FSI coupons.
• 36% of active shoppers (consumers who shop on a weekly basis) used SmartShop.
• Transactions totaling over 6% of sales were paid for using ACH through Pay By Touch.

We have made progress with rollouts, for example, in the two launches mentioned above. We have not yet expanded into California, but still plan to in the future.

Because we are privately held, we cannot comment on profitability.

Because of the involuntary bankruptcy petition, we can’t speculate on how we will respond to the petition. And, as there are currently legal issues over company governance, we cannot comment on the board or senior executives.

To answer your final question, John Rogers was not in fact convicted of a felony. He was charged with a felony, but the conviction was later converted to a misdemeanor.

Regards,

Shannon

Shannon Riordan
VP Marketing

————————————————————

Update III: Below is a memo that was leaked to us, which the source says was sent anonymously to Pay By Touch/Solidus investors back in June. It caused the management to hold a conference call for investors, but we’re unsure of what the outcome was. We’re told that the CEO reassured investors that everything was fine, and also that a paycheck delay was explained away as a “cash-flow” problem, however we haven’t confirmed any of that.

*****************************************************************
From: XXXXX
Subject: Solidus Networks-The time for change is now
Date: June 3, 2007 1:06:49 PM PDT
To: XXXXXXXXXX

Dear fellow investor in Solidus Networks, I am writing this note to you out of my significant concern for the future of the company and our respective investments. My concern is based upon the following facts which can not be disputed:

1-The company did not pay a significant number of its employees on the designated payroll date at the end of May. In other words, they missed payroll. As of June 3rd, these same employees have not been paid.

2-The company has amassed a significant Accounts Payable balance and has not paid many of its vendors and contractors for months. A number of these vendors have placed the company on credit hold or have walked off the job. If it has not already affected operations at the company, at some point the non- payment of vendors will impact the company’s ability to function and produce revenue.

3-Key personnel have begun to resign from the company including the recently hired CFO and Chief Administrative Officer. (Based upon my count, this is the fifth CFO the company has had in the last 4 years.)

4-Despite the above financial issues, the company continues to spend significantly more money each month than it earns.

Based upon my experience, these are not the metrics and symptoms of a well run company. I have made my own calls and checks to various employees within the company and have found that not only is the morale low, but these employees have told me they have little confidence in the CEO of the company and the board to solve these problems.

Given the current direction of the company, I believe significant change is warranted.

What can be done?

If you share my same concerns, we must insist the company take the following actions immediately:

Action #1-Eliminate the Super Voting stock owned by the CEO and other shareholders.

A few shareholders, including the current CEO, own stock with special voting rights that gives them disproportionately more voting rights than their ownership stake. This special stock allows the CEO and one other shareholder to determine the makeup of the board. Since the CEO essentially controls the board, there are minimal checks and balances over his actions (or lack of actions) to address the company’s issues.

Action#2-Once the Super Voting stock is eliminated, the shareholders should elect a new board that is beholden to all the shareholders and not just a few shareholders.

Action #3-The new board of directors should put in place a management team capable of making the necessary strategic, operational, and financial changes to enable Solidus Networks to succeed in the marketplace.

I am afraid that unless the above changes are made, the company will continue down its current course and at some point the downward trend will not be reversible. Therefore, if the company does not take all these actions within the next 2 weeks, I propose we organize ourselves and take all legal actions necessary to protect our rights as investors.

It is possible that we may hear all kinds of promises and positioning from the current CEO in response to this note, however, a close examination of the facts will demonstrate that he is responsible for the current situation and until the Super Voting rights are eliminated and a newly elected board and management team are in place, none of us should be satisfied with the promises from a person who has led the company to this position of significant risk.

Your comments on the above are encouraged.

Concerned Solidus Networks Investor