Here’s the lawsuit WPP filed against Spot Runner and several high-profile executives and investors.
The suit names Nick Grouf (founder/CEO) and David Waxman (founder), as well as Danny Rimer of Index Ventures, Bob Pittman, and several other well-known investors.
Here’s the primary allegation:
“The defendants operated the company for their own benefit instead of the best interests of the company and its stockholders… They perpetuated a “pump-and-dump” scheme in which they promoted the company to new investors and sold large quantities of their own shares…”
Specifically, the lawsuit alleges that Nick Grouf and David Waxman sold $30 million-worth of stock over a couple of years and Battery and Index ventures sold $24 million… while telling WPP that no insiders were selling. WPP says it wouldn’t have bought its pro rata share of a follow-on offering if it had known the founders were selling. It also points out, apparently with justification, that the company needed the money that the founders and VCs have taken out of it.
(Spot Runner has burned through $80 million of the $100 million it rasied and only has $20 million left. In the past two years, moreover, it has lost $35 million and $45 million, respectively–on paltry revenue of $5 million and $9 million.)
Given the reputations of the players involved–especially the VCs–the allegations are startling. Thus far, Spot Runner’s public response has been that WPP is just angry that it blew its own chance to dump stock. It will be interesting to see how Index, Battery, and Bob Pittman respond. Specifically, it will be interesting to see whether they will back the company against the allegations…or say that they got screwed, too.
Based on the specificity of the allegations, Spot Runner’s brief statement isn’t sufficient to explain away the complaint. Assuming there’s more to the company’s side of the story, we look forward to hearing it.
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