Handcuffed

What does a designer underwear startup have to do with asbestos? Until recently, nothing. But in the case of Santa Monica-based ecommerce company MeUndies, some bad decisions involving removal of the known carcinogen means that the company will be without its founder and CEO for the next year.

In a decision handed down by a Chief U.S. District Judge in Dallas on February 28, but not reported by the tech or business press in the weeks since, MeUndies co-founder Jonathan Shokrian was sentenced to 12 months and one day in federal prison and a $25,000 fine following a guilty plea for a 2008 Clean Air Act violation. His father, Elias Shokrian, paid a $500,000 fine on behalf of the family’s Beverly Hills-based real estate investment and property management company Califco in relation to the same violation.

While attending Dallas’ Southern Methodist University, Jonathan Shokrian, worked for Califco as a Regional Director. In this capacity, he oversaw an asbestos removal project at a property called Fazio’s department store in the Plymouth Park Shopping Center. According to the US Attorney, rather than hiring a specialized asbestos removal service – something he had done previously on other projects – Shokrian simply hired two day laborers to complete the task, providing them with masks, respirators and other tools that offered inadequate protection. The workers then used floor grinders and hand tools to remove the asbestos floor tiles, subsequently dumping the waste material in a city landfill.

The low-budget operation was uncovered by the local fire department when the workers, allegedly at Shokrian’s direction, covered the contaminated tiles with gasoline, prompting neighbors to complain about the smell. The area was evacuated as a result and the case became a Clean Air Act violation.

Despite the guilty plea, Shokrian has denied responsibility for the incident, telling the Dallas Observer, “I had no choice but to sign a lot of documents that misrepresented the truth [or risk more prison time].” He subsequently shifted blame to a Califco construction manager who he said examined the property for asbestos and concluded that the tiles in question were low risk.

As bad as the outcome is for Shokrian, it’s not much better for MeUndies, which lost its CEO and faces a PR black eye for its association with the ugly incident. The case, which involves a wealthy family seemingly shirking its responsibilities to protect its employees and neighbors, raises uncomfortable questions at a time when Silicon Valley is mired in class tensions and the country as a whole is suffering from crippling income inequality.

It’s unclear what impact Shokrian’s arrest will have on his ownership in MeUndies or what role the founder will have once released from prison. MeUndies replaced Shokrian as CEO during the early stages of the Dallas trial, hiring Bryan Lalezarian in February 2013, according to LinkedIn. The four-year-old company has raised just $1.4 million to date (from unnamed investors).

That said, the change in leadership doesn’t seem to have slowed the company any to date, as MeUndies had its best week ever in April, thanks to a bit of manufactured controversy with Facebook and a clever ad campaign. The company similarly pushed the envelope with a June 2013 ad campaign on an adult site.

Clever and provocative advertising is one way to build a brand, and it appears to be working well for MeUndies to date. But for all the attention, MeUndies remains a relatively small company of less than 10 employees and seemingly modest revenues.

As we’ve explored at length here at Pando, ecommerce is incredibly unforgiving. MeUndies will need to execute flawlessly, both on the brand building and the operational sides of its house if it wants to see the business thrive. It would also do well to distance itself from Shokrian and avoid future run-ins with the law. There’s only so much real controversy an irreverent underwear startup can take.

MeUndies did not reply to Pando’s request for comment on this news (~2 hours prior to publication). We will update this post with additional information if and when it becomes available. 

Update (5/19/14, 9:00pm): MeUndies Director of Business Development Dan King provided the following comment to Pando via email:

Greg is on a flight, we wanted to send over a couple comments. Keep in mind, we are discussing an event that took place six years ago in TX, long before MeUndies was founded. So although it is now a topic of conversation, it is something that we have foreseen and planned for well in advance as a company. As a result, we have a great team in place, comprised of 15 awesome people, including the leadership of Bryan as CEO since last year.

Jonathan is a talented visionary and has helped build a great brand at MeUndies. With that foundation in place, we continue to hit record revenue numbers each month. So the numbers suggest that MeUndies is a strong as ever, and we couldn’t be more excited to continue our growth path and deliver the world’s most comfortable underwear to new customers each day.

[Image via Victor, Flickr]

  1. MeUndies
    The World's Most Comfortable Underwear
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    MeUndies is a lifestyle brand that is transforming the way people perceive and purchase their basics. As a vertically integrated, direct-to-consumer company we do it all: from design and manufacturing, to marketing and web design & development, to fulfillment and shipping, MeUndies delivers The World’s Most Comfortable Basics with a relentless emphasis on quality and service.

    1. Michael Jones
      Past Investor