(FORTUNE Small Business) – When we profiled Dan Pallotta last March ["The Business of Charity"] he was, well, on a roll. True, Pallotta TeamWorks, his for-profit bike tour and walkathon business, was defending itself from often loud and sometimes litigious critics. Their complaint? His fundraising firm was taking too big a cut of the money it raised. But back then Pallotta seemed determined not to be sidetracked by his detractors. The company he started in his one-bedroom apartment ten years ago was moving into 47,000 square feet of new, designer-built office space outside Los Angeles. Inside, his 305 employees were busy putting together a record 24 events to raise money and awareness for the world's many ills, including AIDS, breast cancer, suicide, and poverty. As Pallotta told FSB last year: "This is a company that's trying to save the world." As it turns out, he needed to save his company.

PTW came to a standstill on Aug. 23, when Pallotta pulled together his staff and announced that, with few exceptions, everyone would be laid off. It was an unceremonious end for a firm infamous for adding New Age pomp to philanthropy. A skeletal staff did regroup for PTW's final events this past October but was disbanded shortly afterward. At press time in November, the company was in the process of shutting down. "Pallotta was an amazing event producer," says Suzy Becker, founder of Ride Far, a 13-year-old New England fundraiser for HIV/AIDS services. "He raised an incredible amount of money for organizations that sorely needed it." So how did Pallotta, who amassed more than $200 million for charity, find himself out of business and out of favor with the activists he once raised funds for?

Lawsuits didn't help. PTW was embroiled in a bitter legal fight with the San Francisco AIDS Foundation and the Los Angeles Gay & Lesbian Center. Both were beneficiaries of Pallotta's flagship event, the California AIDS Ride, and both were upset over dropping returns and what they saw as accounting anomalies for the 2000 ride. While the financial disputes have been resolved, PTW lost its lawsuit to prevent both groups from hosting a competing benefit ride scheduled just two weeks before Pallotta's. Then, in April, Mark Cloutier, a California-based activist and former participant, filed a class-action lawsuit alleging that PTW's AIDS Vaccine Rides had said it would deliver 60% of the $19 million it raised, but handed over just 21%. The case is still pending. Pallotta did not return FSB's calls.

With their fundraising hamstrung by the economy and Sept. 11 donor fatigue, many of Pallotta's partners bailed out as criticism grew over the firm's high overhead costs and heavy-handed marketing. In May, Avon said Pallotta would no longer produce its three-day walks to fight breast cancer. "We have one cause and one mission," says Avon's Susan Heaney. "Maintaining that focus wasn't always easy with [PTW]." That same month two Washington, D.C., groups also ended their PTW agreements and hosted their own ride. "The event producer had become bigger news than the event," says Craig Shniderman, executive director of Washington's Food & Friends. "We had to work too hard to overcome Pallotta's negative image."