Newly Public Company Violin Memory Is In Turmoil And The Lawsuits Are Flying

Don Basile CEO Violin MemoryViolin MemoryDon Basile CEO Violin Memory

Things are getting ugly at Violin Memory, a company that makes on-site, enterprise storage hardware that just went public two months ago. CTO Jonathan Goldrick has left the company, Violin confirmed to Business Insider, and shareholder lawsuits are flying.

The rumour is that CEO Don Basile could leave soon, too.

A Violin spokesperson told us:

I can confirm that Jonathan has left on good terms. His responsibilities are being shared by Violin’s Founder and CTO Jon Bennett and CTO Som Sikdar (co-founder of GridIron). As far as Don being out of the company — that is a rumour, and we cannot comment on rumours.

Violin’s IPO in September wasn’t a hit. It raised $US162 million by selling shares for $US9, but on opening day, the stock tanked, diving to about $US7. As we reported at the time, investors were likely scared off by how quickly Violin was burning through its cash and by the fact that its once largest partner, HP, had ended that deal to become a competitor.

On November 22, the company reported its first earnings and the response was awful. It reported a loss of 66 cents per share, and an adjusted loss of 85 cents per share. Analysts had expected a loss of 44 cents per share. That prompted analysts at J.P. Morgan and Sterne Agee to downgrade the stock, according to MarketWatch’s Ben Eisen.

Investors started selling, and the share prices plunged nearly 46% to about $US3.

Over the past couple of days at least five shareholder lawsuits have been filed against the company. They allege that the company didn’t disclose how much of a hit it was taking because of the federal shutdown. Shareholder lawsuits are pretty common when things go wrong, so that in itself isn’t unusual.

However, there has also been grumbling on investor blog Seeking Alpha over Basile’s compensation.

In September 2013, while setting up for the IPO, the board awarded him 1 million shares of stock (RSUs) that will mature over four years. In 2013, he earned a $US400,000 salary, a bonus of $US725,000, options worth nearly $US3 million and stock awards worth $US14.8 million — all told $US18.9 million in total compensation.

Basile joined Violin in 2009, stealing him from its arch competitor, Fusion-io, where he had been CEO.

Fusion-io, known as the employer of Apple cofounder Steve Wozniak and former HP executive Shane Robison, is in the middle of its own troubles. It was a tech IPO darling of 2011, launching at $US19. Today, it’s trading at about $US8.75, and is fending off a shareholder lawsuit of its own.

In October, after a worse-than-expected quarter, it announced that its CFO, Dennis Wolf, was leaving.

Amidst all of this, Violin and Fusion-io competitor Nimble Storage has decided to go public this week, on Friday.

Nimble is hoping to raise up to $US160 million by offering 8 million shares between $US18 and $US20. Today it increased its share price, too, up from the $US16 to $US18 range.

We’ll see how eager investors are to try their hand at another enterprise flash storage startup, given the situation at the previous two.

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