Advertising behemouth WPP Group has filed suit against some of its fellow VC investors in Spot Runner, accusing them of running a “pump and dump” scheme that netted $54 million at the expense of WPP and other Spot Runner shareholders. Among the defendants are Battery Ventures and Index Ventures, plus Spot Runner’s co-founders and former AOL boss Bob Pittman.
I haven’t read through the entire complaint yet (see it below), but here is an operative paragraph:
“The defendants operated the company from its inception for their own benefit instead of the best interests of the company and its stockholders. 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. Such secondary sales were accomplished surreptitiously and without the disclosures to investors required by the controlling investor agreeemnts or the federal and state securities laws.”
Spot Runner is a Los Angeles-based Internet ad agency for local businesses. It has raised over $110 million from firms like Battery Ventures Index Ventures, WPP Group, Allen & Co., The Interpublic Group, Tudor Ventures, Daily Mail & General Trust, Grupo Televisa, Legg Mason Capital Management and Groupe Arnault/LVMH.
Both Battery and Index declined to comment. [Update: Spot Runner has sent a memo about the situation to its employees].
Here is a copy of the complaint, filed April 9: