Investor sues Uber’s ex-CEO, alleging fraud
An explosive lawsuit against former Uber CEO Travis Kalanick, filed by early investor Benchmark Capital, alleges “gross mismanagement and other misconduct” that threaten the value of its investment in Uber. The suit says Kalanick committed fraud to retain control of Uber’s board and seeks to have him kicked off the board and pay unspecified damages.
The lawsuit, filed Thursday in Delaware Chancery Court, alleges that Kalanick — who co-founded ride-hailing company Uber in San Francisco, built it into the world’s most valuable private technology company, and still owns about 10 percent of its stock and 16 percent of its voting power — committed fraud, breach of
fiduciary duty and breach of contractual obligations.
Such open conflict is rare in the clubby world of Silicon Valley. Venture capital firms strive to maintain an image of being friendly to startup founders, resolving disagreements behind closed doors. But Benchmark itself has investors — limited partners who could take action if Benchmark didn’t act to protect their interests. And with Uber valued at $70 billion, fortunes are at stake.
Under Kalanick’s watch, Uber experienced “a pervasive culture of gender discrimination and sexual harassment” and “alleged(ly) harbored trade secrets stolen from a competitor,” the suit claims.
A spokesman for Kalanick said the lawsuit is “completely without merit and riddled with lies and false allegations . ... Benchmark’s lawsuit is a transparent attempt to deprive Travis Kalanick of his rights as a founder and shareholder and to silence his voice regarding the management of the company he helped create.”
Benchmark and Uber declined to comment.
“If the allegations in the complaint are supported by the evidence, then Travis Kalanick has a very, very serious problem,” said Joe Grundfest, a professor at Stanford Law School and former commissioner at the Securities and Exchange Commission. Potentially the proof could be quite easy, he said. “Much of the information in the complaint is already in the public record” now but wasn’t known earlier, Grundfest said. “All (Benchmark) would have to do is demonstrate that Kalanick knew about these problems at the times he requested various consents from the directors and didn’t disclose them.”
In other words, it comes down to who knew what when, he said.
Kalanick was ousted as Uber’s CEO in June by Benchmark and other investors after the company was rocked by months of legal and ethical scandals, including allegations of a hostile workplace culture and a lawsuit by Alphabet’s Waymo alleging that Uber stole self-driving trade secrets. Kalanick had already taken a temporary leave after the recent death of his mother in a boating accident. But press reports said Kalanick was angling to return to lead Uber, just as Steve Jobs did years after being forced out of Apple.
The lawsuit makes it crystal clear that Benchmark — which owns 13 percent of Uber’s stock and controls a fifth of its voting power — wants to make sure Kalanick never again assumes a leadership role.
“Kalanick’s overarching objective is to pack Uber’s board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO — all to the detriment of Uber’s stockholders, employees, driver-partners and customers,” the suit said.
In 2016, Kalanick worked to secure his position by rigging the board, the suit charges. He orchestrated a plan to expand the board from eight to 11 seats, giving himself the sole right to pick the new directors. When he resigned, he assured Benchmark that two of those three directors would be independent and subject to approval by other board members, according to the suit. Kalanick named himself to one of the three new board seats after he had to relinquish the seat reserved for the CEO, and refused to honor his commitments regarding the board seats, the suit charges.
Benchmark partner Bill Gurley was a longtime Uber board member and at one point a close confidant of Kalanick. According to news reports, the two fell out, with Gurley pushing for his resignation as CEO. Still, he remained publicly supportive. On the day Kalanick stepped down, Gurley tweeted, “There will be many pages in the history books devoted to (Kalanick) — very few entrepreneurs have had such a lasting impact on the world.”
Gurley left the Uber board after Kalanick’s resignation and was replaced by another Benchmark partner, Matt Cohler. Cohler and Benchmark partner Peter Fenton had flown to Chicago to deliver a letter from investors to Kalanick urging his resignation, the New York Times reported in June.
By filing suit without public support from any other Uber shareholders or board members, Benchmark is revealing a huge split on Uber’s board, said San Francisco lawyer Steve Hirschfeld, who is not involved in the case.
“Normally these kinds of skirmishes are dealt with quietly and discreetly behind the scenes,” he said. “There must be a level of dysfunction on the board that they can’t repair at this point. Benchmark’s only way to get leverage is to file a lawsuit with scintillating allegations.”
Robert Bartlett, a UC Berkeley law professor and co-director of the Berkeley Center for Law, Business and the Economy, said the lawsuit “paints a picture of a company that Travis basically was ruling without a lot of direct oversight” by the board. “It’s an indictment of the governance of Uber.”
The suit rehashes much of Uber’s annus horribilis, laying the blame for the scandals directly on Kalanick and saying that his “misstatements and omissions” sought to conceal his “gross mismanagement” from Benchmark and Uber’s board.
The suit details several of the scandals:
Waymo vs. Uber lawsuit. Kalanick assured the board that Uber’s $680 million acquisition of self-driving truck startup Otto would be transformative for Uber. Otto was started by former Waymo star engineer Anthony Levandowski, who now stands accused of having purloined trade secrets from Waymo to bring to Uber — the basis of a trade-secrettheft lawsuit Waymo filed against Uber, which is set for an October trial.
“Recent public disclosures suggest that Kalanick apparently knew before (buying Otto) that Levandowski had improperly taken information from Waymo,” the suit says. Waymo’s lawsuit “presents significant legal, financial and reputational risks to Uber — risk that could have been reduced or avoided if Kalanick had disclosed critical facts about his own apparent knowledge at the time of the Otto acquisition.”
India rape. An Uber driver was convicted of raping an passenger in India in 2014. After the rape victim sued Uber, the company’s senior executives, including Kalanick, “allegedly obtained and reviewed a medical report of the rape victim in an effort to discredit her claims,” the suit says.
Sexual harassment and gender discrimination. After engineer Susan Fowler wrote a blog post about Uber’s aggressive workplace culture, the company commissioned an external investigation.
Kalanick already knew and “facilitated” the “pervasive cultural issues” at issue, the suit said. A 2013 memo from Kalanick advised employees on rules for having sex with each other at a company event in Miami, according to the Recode news website.
Greyball. Uber used technology called Greyball to trick authorities investigating the company, according to a March New York Times article. Kalanick knew of the Greyball program but didn’t tell the board anything about it, the suit says.
The lawsuit and the board schism it reveals don’t bode well for Uber’s attempts to hire a new CEO.
“Uber is still a phenomenal opportunity, an unbelievable global brand, even if it’s now somewhat tarnished,” Hirschfeld said. “In theory, a lot of people would love to take a shot as the CEO, but it’s very hard to recruit a new CEO if you don’t have the entire board behind you.”