Social media advertising revenues across the Internet totaled only $600 million in 2007. Webwide ad revenues generated $18 billion. Social media gets such a small piece because ad buyers consider its inventory market-saturated junk at worst and too difficult of an ad buy at best. Not even Google's figured the trick out yet on MySpace. Nobody told DCM cofounder and general partner David Chao, who "believes that RockYou will be the catalyst of this new global ecosystem that delivers next-generation advertisements through its innovative advertising network and social applications," according to the press release. (Photo by califrayray)

The IRS has stepped up efforts to crack down on unpaid payroll taxes in recent years. This form of fraud hurts both employees, who may be on the hook for monies withheld from their paychecks but never sent to the government, as well as taxpayers. The IRS can press charges against not just the company but top officials as well; the corporate veil, a legal concept which protects officers and directors from the actions of a corporation, does not apply here, I'm told.

That likely explains why Red Herring reported last year that half its board members had quit. David Chao, the cofounder of VC firm Doll Capital Management, still serves on the board, according to his online biography. Is his reputation worth a continued association with the Herring? Vieux can be charming and persuasive. Perhaps he kept Chao and other board members in the dark.

If the IRS investigation concludes that the Herring didn't pay its taxes, its directors have an unpleasant choice: Confess to complicity in the fraud, or admit that they were among the many Vieux has duped. Embarrassing as it would be, I'd suggest they go with the latter. They'd have plenty of company.