TL Ventures Dispute Heads To Arbitration (And Then Back to Court)
Earlier this year, Connie wrote about how TL Ventures was in the midst of litigation with three of its former staffers, including ex-partner Bob Fabbio. At issue was more than $2.3 million in clawbacks that TL claims is owed by Fabbio, former managing director Stan Tims and former principal Stephen Andriole.
There is some dispute as to whether the clawbacks can even be requested before the funds are officially dissolved, but the larger issue is whether or not remaining TL Ventures partners used management fees to pay off part, or all, of their own clawback liabilities.
As the trio’s attorney Cindy Olson Bourland told me: “I believe the evidence will show that certain partners… engaged in self-dealing by stashing away money for clawback instead of running TL Ventures in accordance with its investment strategies.”
The trio sued TL for an accounting of its management fees. TL countered by arguing that Fabbio, et all had previously signed away their rights to a court case, with arbitration as their only recourse.
All of this brings us up to the present, and an arbitration case set to begin on December 1. Fabbio’s attorneys have already deposed TL Ventures CFO Pam Strisofsky, but TL insisted that her deposition remain confidential (I called TL for comment, but received no reply).
What’s important to note, however, is that the arbitration will be limited to issues surrounding TL Ventures’ third fund, even though Fabbio’s original lawsuit also included a request for information on Fund IV. Once this arbitration ends, expect Fabbio to revive at least part of his original lawsuit (filed in Texas), plus possibly file a new suit in Delaware or Pennsylvania (where TL is based). In other words, arbitration will not be the end of this…
Here is a copy of Fabbio’s most recent petition:
Second Amended Petition
Related posts:
DanishFish said on November 17, 2009
Something is rotten in Demark
This story is just getting started. Try taking a look at the Traffic.com deal where Mr. Denino and Mr. Burns pocketed 10s of millions in “founders†and common stock. How did they accomplish this given the many rounds (including an insider round) for Traffic?
Simple. After issuing themselves shares they turned down outside term sheets to protect their own shares. Why take in outside money when since they controlled TL Ventures personally with Mr. Keith could structure rounds to save their shares.
This is money that would have gone to the pension funds, retirement funds and institutions that trusted Mr. Denino and Mr. Burns.
Oh and if those 10s of millions had gone to to TL IV instead of Denino and Burns—there would be no “Clawback†at all. I guess when looting TL V and IV, these guys took one too many pennies from the piggy bank and they got caught.
Amusingly, during all of this Keith and Denino have not discloses their actions to their own investors or prospective investors. Pure hubris.
KLO said on November 17, 2009
Well I am a bit surprised to see this in print, usually these items are swept under the rug.
I think Danish Fish has an interesting post, but a more interesting question is—what about all the investments and follow ons they didn’t do because of Traffic? i.e. you can’t do other follow ons if a cash intensive deal like Traffic needs $$$ at an artificially high inside round to protect the self dealing partners interests.
Do other TL Partners have a case to make that their carry and clawback was impacted by the defacto control Denino had? Do LPs have a case that they would have made more money if they had had larger shares of Traffic.com instead of it going to Burns and Denino?
Essentially is was a transfer of wealth from the limited partners and the other GPs in TL into their pocket. Kind of hard to calculate the lost “opportunity†cost of money that could have gone into other deals and gotten exits, but you can calculate the amount that went to the self dealing partners and didn’t go to other partners and LPs.
Will be interesting to see how this turns out. Nice to see the “Good partners†in TL trying to fight it out with the self dealing ones to set things right.
Afraid To Be Dragged In said on November 17, 2009
There is so much more to this than meets the eye. Just look at cached versions of the Web site from 1999 on. All of the General Partners and investment professionals save Bob Keith and Mark DeNino are gone! When you look at their Web site today, other than Keith and DeNino those they advertise as the “team†have no venture capital experience, or haven’t been actively involved with the firm for years, or are stand-ins. At least 3 have never served on the Board of a TL investment and/or have minimal direct experience in managing venture capital investments. They have portfolio companies in the life sciences, yet none of the current team has any experience investing in life sciences. At least 2 and maybe 3 of the 9 don’t even live in cities where the firm has offices! If you asked the CEO’s or management teams of their portfolio companies when the last time they saw their TL investment professional in person you would only be slightly more shocked than if you asked them who was their original contact and Board member. The LPs along with former partners from whom they are seeking claw back have been kept in the dark about multiple material issues from law suits, to changes in personnel, to self-dealing.
DC said on November 19, 2009
As someone who worked at Traffic (mobility), I can tell you Burns only got his stock as a “TL Taxâ€. He rarely showed up to work and when he did it was around 10 or 11…for a few hours. Traffic was a hugely capital intensive business and it was his ability to get cash from Bob Keith and Denino on ridiculously favorable terms that made giving him a big stock grant worth it. Burns floated out of TL and back in once or twice around a big stock grant. Ethical,-no, but worth it for Traffic?…you bet.
Basically Keith – Deino and Burns as the “next generation of TL†ran TL.
I think the bankers gagged a bit at the IPO but there was some sort of pre IPO quick sale to keep it relatively clean. He maybe had 10% of the company but we had to give bout the same to the bankers for the IPO. Corruption exists in all sorts of forms, sometimes it’s better not to say anything until the check clears.
Interestingly, as soon as Burns got his cash from the Traffic IPO—I heard he left to found his own venture firm which he always said he would do. All while TL was trying to raise a fund off of bad performance numbers…I think the only person who didn’t know that was Bob Keith who can’t be too happy about how this has all turned out.