FBI probing secret software to track Lyft
Uber is facing a third federal probe, this time for allegedly spying on Lyft drivers — a development that underscores the many challenges new CEO Dara Khosrowshahi faces at the world’s most valuable startup.
The FBI and the Manhattan U.S. attorney’s office are investigating a former Uber program, internally called “Hell,” that allegedly tracked Lyft drivers and collected price information as the two companies battled fiercely to build the biggest stable of drivers. The probe was first reported by the Wall Street Journal.
“Hell” was reportedly a secret software program that created fake Lyft passenger accounts. This allowed Uber to keep tabs on Lyft drivers, including which ones also drove for Uber. It used that information to dangle financial incentives designed to keep drivers working exclusively for Uber.
The Information, which in April was the first to report the existence of “Hell,” said that the program was in force from 2014 to early 2016, and that former CEO Travis Kalanick — who was ousted in June but remains a major shareholder and board
member — was among a handful of people who knew about it.
“Hell” could constitute breach of contract, unfair business practices, theft of trade secrets and violation of the Computer Fraud and Abuse Act, according to legal experts.
Lyft driver Michael Gonzales filed a class-action lawsuit against Uber in April over the “Hell” program on the grounds that Uber had invaded drivers’ privacy, engaged in unfair competition and violated the Federal Wiretap Act. A U.S. district judge dismissed the lawsuit in late August but left the door open for Gonzales to file again with an amended complaint.
Uber spokesman Matt Kallman said the company is cooperating with the New York investigation, and noted that
the “Hell” program is no longer operational. Lyft did not respond to a request for comment.
“What’s surprising about ‘Hell,’ is, here we have a company that’s talking about keeping its drivers’ names private but still was seeking to track drivers for both Lyft and Uber to try to manipulate them,” said Alice Armitage, an associate law professor and director of the Startup Legal Garage, which provides legal advice to early-stage companies, at UC Hastings College of the Law. She was referring to Uber’s defiance of the San Francisco treasurer’s subpoena seeking driver information for business license registrations. After initially providing the information, Uber said that it wanted to shield drivers’ privacy and declined to do so. That case is being litigated in San Francisco Superior Court.
Uber is facing at least two other federal probes, as well as some lawsuits. It’s also mired in controversies over an aggressive workplace culture.
An Uber tool called “Greyball,” designed to thwart law-enforcement probes, is under investigation by the FBI and the U.S. attorney’s office for the Northern District of California. “Greyball,” which was first reported by the New York Times in March, used fake versions of the Uber app to evade regulators in cities trying to crack down on Uber.
The U.S. Justice Department is investigating whether Uber bribed foreign officials, which would be a violation of the Foreign Corrupt Practices Act. The specific countries in question have not been revealed.
“Foreign bribes are usually (alleged by) huge companies; startups aren’t usually investigated for that,” said Armitage. “But for Uber to grow to 77 countries in eight years took a lot of aggressiveness.”
Uber’s Global Head of Compliance, Joseph Spiegler, resigned from the company last week, Bloomberg News reported Friday, citing two unnamed sources. He had been at Uber less than two years, and his job was to ensure that Uber obeyed the law.
Uber also is the target of a lawsuit by Waymo, Alphabet’s self-driving car division, alleging that it stole trade secrets under the guise of acquiring a company started by a former Waymo engineer. Waymo vs. Uber is currently set for a jury trial in federal court in San Francisco on Oct. 10.
Kalanick is being sued by Benchmark Capital, a major Uber investor, for fraud and gross mismanagement. Benchmark claims that Kalanick deceived the board about Uber’s problems, in order to stack the deck to favor his own position on the board. Kalanick has denied Benchmark’s charges. Through a spokesman, he has said the lawsuit is “completely without merit and riddled with lies and false allegations.”
That case, filed in August in Delaware Chancery Court, has been referred for arbitration, which means that its records will remain private.
“Uber is the poster child for disruption, but that attitude was taken to its ultimate manifestation,” Armitage said. “Everyone there in a position of authority seemed to feel that anything could be disrupted — including laws.”
For Khosrowshahi, who was recruited to Uber’s top job after 12 years heading travel company Expedia, the challenge will be to rein in those tendencies, she said. “He has a tough role in dealing with that ‘winning at all counts’ mindset,” she said.