Vice Mayor of Sausalito accused of misusing funds from his concert ticketing startup
While fallings out between startup founders aren't unusual, it's not often that they come to litigation. And it's full-on weird when one of the parties in that litigation -- the founder and CEO of the company -- is also the Vice-Mayor of Sausalito.
Jonathan Leone, Sausalito’s Vice-Mayor and self-purported President and CEO of concert ticketing start up Thrillcall, has been sued by his two fellow founders, Chad Taylor and Matthew Tomaszewicz, in a lawsuit filed in California Superior Court in Marin County in mid-November.
The two plaintiffs allege a laundry list of complaints, among them that Leone purchased between $450,000 and $900,000 of Western Union transfers and MoneyGrams sent to three women in different countries with no connection to the company, that he hired unqualified friends for salaried positions, funded travel to states for conferences with little to do with work, and neglected a host of operational responsibilities such as not paying invoices, refusing to show up for work and deleting important corporate documents.
According to the suit, Leone co-founded Thrillcall in 2007 alongside Chad Taylor and Matt Tomaszewicz, both listed as online product management and consumer media specialists. Leone contributed capital, with Taylor and Tomaszewicz contributing expertise, which the plaintiffs call “sweat equity,” in exchange for co-ownership, split equally three ways.
Then on October 23 of this year, Leone, claiming to have sole financial control and ownership of the corporation, fired Taylor and Tomaszewicz. The pair filed suit three weeks later for relief for breach of oral contract, breach of fiduciary duty, and wrongful retaliation.
The suit claims that, three weeks before they were fired, Taylor and Tomaszewicz had discovered receipts for hundreds and thousands of dollars of inappropriate transfers and confronted Leone about what they believed to be a criminal act.
Reached for comment on the litigation, Leone issued the following statement to PandoDaily:
The lawsuit has no merit. Because of a disagreement over management of the company that owns thrillcall.com, Taylor and Tomaszewicz were terminated as employees on October 23, 2013. Leone continues to operate the popular live music discovery website and mobile app with a full staff of business and marketing personnel and software developers, many of whom have worked for the company for several years. Over the last two weeks, the company moved into new office space in San Francisco’s financial district and is in full operation. Leone, an original founder, has been the corporation’s sole source of funding since its inception.
The lawsuit, in essence, is a dispute over percentage ownership. The lawsuit’s allegations of improper use of corporate funds and other improper conduct are absolutely false. Leone will vigorously defend the lawsuit and expects to prevail. Tomaszewicz and Taylor declined to comment.
The current legal debacle represents a perilous development for Thrillcall. A small startup with 15 employees and annual revenue in the low millions of dollars, it has not yet turned a profit. Thrillcall earns revenue through affiliate fees on concert tickets from several hundred ticket vendors, including Ticketmaster and StubHub.
According to the lawsuit, Thrillcall's messy entanglement dates back to an oral agreement at the moment of its founding. The company got its start in 2007, when Leone agreed to put up the capital for the company with Taylor and Tomaszewicz contributing their startup experience. The amount Leone invested is unconfirmed, but PandoDaily has learned that the sum was at least $1 million. Leone’s Sausalito investment disclosure states that his shares in Thrillcall (316 Ventures, Inc.) have a fair market value of more than $1 million.
Alongside the oral agreement to split ownership three ways was the agreement that Leone, Taylor and Tomaszewicz would act as co-directors, employees and officers of the company. Thrillcall later filed a certificate of incorporation in Delaware on October 22, 2009 under the name 316 Ventures, Inc.
On December 31, 2009, the corporation issued 10 million shares to be split three ways, but the share distribution was never reduced to a final signed writing, the lawsuit states. Taylor and Tomaszewicz continued to act on their oral agreement. 316 Ventures continued to do business, and Leone treated them as if they had control of the corporation, the lawsuit states.
However, Leone’s did not transfer any shares to his co-founders and remained technically the sole owner of Thrillcall.
From the lawsuit:
It eventually became apparent that the defendant was using his authority as the nominal president and a director of the corporation and his de facto control of the corporation's financing to control the company and its corporation financial affairs, often in disregard of his duties as officer and director, to his personal advantage, and in disregard of the Plaintiff's interests as directors, officers, shareholders and business partners.Leone "repeatedly usurped responsibilities and decision making of the Plaintiffs in areas where he had less or no expertise," the suit continues.
These events took place in 2009 and 2010, while Leone was also the Mayor of Sausalito. He took the position via his seat on the city council, where he was elected in 2006 and re-elected in 2010. He became Vice-Mayor in 2010, and his term expires in November 2014. (Additional tidbit: In 2011, Sausalito Councilwoman Carolyn Ford accused Leone of acting "verbally abusive.")
Taylor and Tomaszewicz allege that they became increasingly concerned about Leone's behavior: He would skip job interviews and important company documents had gone missing. The two had asked him to see the company's financials every year since 2009 and he had refused. "To this day, plaintiffs do not know what books and records have been kept or maintained and what condition they are in," the lawsuit states.
At the end of September this year, an already tenuous situation started to unravel quickly.
On October 2nd, Taylor and Tomaszewicz found Leone's receipts for between $450,000 and $900,000 in Moneygram and Western Union money transfers of corporate funds. They reported the finding immediately, as failure to do so would have violated a fiduciary duty as officers of the company.
That day, Tomaszewicz sent an email to Thrillcall's employees, including Leone, explaining what was happening.
"As we've communicated to you, we -- Chad and I -- have been asking some very important questions of Jonathan over the past few years and increasingly more so over the last few weeks," he wrote in an email obtained by PandoDaily.
In the email, Tomaszewicz explained what he felt was Leone's concerning behavior, with missing documents, secretive financials, and unauthorized changes to the company's lease and healthcare plans. An entity called 316 Ventures GP had begun appearing in communications, which is different from Thrillcall's corporate entity, 316 Ventures, Inc, Tomaszewicz wrote.
He closed by noting that he'd had a positive conversation with a potential acquirer "if we are in fact interested" in selling Thrillcall.
On October 15, Leone announced to employees that he was the sole shareholder of the company. He had issued a one-man vote of the company's shareholders (him) to remove Taylor and Tomaszewicz as directors, unanimously electing himself as the sole director. He adopted corporate bylaws stating that advances he made to the corporation were of "indebtedness of the corporation."
A week later, Leone fired Taylor and Tomaszewicz as employees and sent a letter to the rest of the staff forbidding them from discussing it with them.
One employee later told PandoDaily, "He made us sign a document that said we would be fired if we talked to our two other cofounders but then said he could fire us anyway. Even if we signed it."
Thrillcall's co-founder dispute teaches simplest of business lessons: "always get it in writing." Despite the simplicity of that rule, countless startups, including Facebook and more recently, Snapchat, have stumbled on it. If Taylor and Tomaszewicz had signed paperwork for their shares, they might still be running the company they co-founded. Instead, they've been pushed to the last resort, a messy public lawsuit.
A trial is scheduled to take place in March.