NEW YORK (AdAge.com) — WPP has filed a lawsuit against Spot Runner, the Los Angeles self-service ad creator in which it has a stake, as well as the agency’s chairman-CEO, Nick Grouf, and its board for securities fraud and breach of contract.
At the crux of the complaint filed in a California court is Spot Runner’s alleged breach of a legal agreement with WPP that would require Spot Runner to disclose stock sales to other shareholders. What’s more, WPP alleges, Spot Runner touted the holding company’s investment in it to gain new investors, only to turn around and sell the stock in violation of federal and state securities law.
When WPP’s stake was announced back in August 2006, more than a few agency staffers were peeved that a ad agency holding company would buy into a potentially “disintermediating” force. Spot Runner, after all, brings self-service web advertising techniques to TV spots and, at least in theory, makes an actual agency unnecessary. The relationship, clearly, has been less than harmonious.
The suit names Spot Runner and Mr. Grouf, as well as David Waxman, co-founder and chief technology officer; Peter Huie, general counsel; and board members Danny Rimer and Roger Lee. It also names the two venture capital firms that helped Spot Runner get off the ground and are now majority shareholders: Battery Ventures and Index Ventures (those firms’ previous investments have included Friendster and Skype, respectively).
WPP is seeking at least $13 million plus attorneys’ fees. Spot Runner plans to fight the claims.
Ad Age Digital DigitalNext MediaWorks “The defendants operated the company from its inception for their own benefit instead of the best interests of the company and its stockholders,” WPP says in court documents. “Rather than working to make Spot Runner a successful and profitable venture, they perpetuated a ‘pump-and-dump’ scheme in which they aggressively promoted the company to new investors (often by promoting that WPP was an investor in and supporter of the company) and then sold new investors large quantities of their own secondary shares at ever-increasing valuations.”
“This lawsuit is about WPP, a minority shareholder, wanting to sell their Spot Runner stock retroactively,” the company said in an e-mailed statement. “This situation is unfortunate; we had hoped that we would have had a long relationship with WPP. We believe the claims are without merit and we will vigorously defend against them, including taking all necessary legal action to protect Spot Runner’s reputation.” A WPP spokesman declined to comment on the suit.
Spot Runner launched in 2006, promoting itself as an innovative way for small businesses to buy cable and broadcast TV advertising services online. Along the way, it has attracted a range of advertising and media company investors, including: WPP rival Interpublic Group of Cos., CBS Corp., Daily Mail and General Trust, Grupo Televisa, S.A.B. Allen & Co., Legg Mason, and Tudor Investments. All told, it raised more than $100 million.
It also managed to attract former top MSN executive Joanne Bradford last year, but she left after a matter of months to take on a post at Yahoo
The lawsuit comes as Spot Runner has had its share of troubles, not the least of which include a few rounds of layoffs, the most recent being last month. The shop is estimated to have less than 200 employees at this point.
Prior to launching Spot Runner, Messrs. Grouf and Waxman launched and sold two other start-ups, Firefly Network and PeoplePC.