Factor 5 claims the company fraudulently shifted assets to avoid ponying up $900,000 in unpaid wages to employees and millions to creditors. The Marin Independent Journal reports the suit outright states that the company stopped paying workers on November 1, 2008 and let them go on December 19. That explains why there were rumors of the company shutting down six months before the official closure announcement was made in May.
As for the alleged fraud, the suit claims that Factor 5 moved assets (source code and other IP) into a company, now called White Harvest, to shield it from creditors. The plaintiffs claim that the company is being run by the same people, same lawyers, "with all the same management and ownership and control," and is performing the same work that Factor 5 was up to -- just with a new name and address. Expect to see more about this kerfuffle in the future.