BUSINESS

Early Uber Investor Suing Former CEO Travis Kalanick For Fraud

"Kalanick intentionally concealed and failed to disclose his gross mismanagement and other misconduct at Uber," the suit claims.

08/10/2017 19:32 EDT

In 2011, a California venture capital firm named Benchmark Capital invested $11 million in a promising young startup called UberCab.

Now, more than six years later, UberCab is just Uber, and its relationship with Benchmark Capital is a bit more contentious. Benchmark filed a lawsuit Thursday against the ride-hailing company’s former CEO, Travis Kalanick, accusing him of fraud, breach of contract and breach of fiduciary duty.

Central to the suit are three seats on Uber’s board of directors that Benchmark and other board members signed off on in a June 2016 decision, expanding the board from eight to 11 seats.

A provision in the agreement granted Kalanick the power to fill the newly created seats with directors of his choosing, which he did by appointing a seat to himself and to two others loyal to him.

The company says it never would have approved the seats in the first place had it known of the many scandals brewing at the company at the time and that Kalanick deliberately misled them. Benchmark’s suit seeks to remove Kalanick and the two additional board seats, which are unfilled, thereby substantially reducing his influence. 

“Kalanick intentionally concealed and failed to disclose his gross mismanagement and other misconduct at Uber,” the suit argues.

One particularly scathing paragraph adds:

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.

Benchmark claims Kalanick was aware that the coming scandals, which he’d hidden from the board, might force him to resign, so he maneuvered to add the board seats so he could still wield influence at the company.

“Kalanick ... knowingly concealed these matters from Benchmark and Uber’s Board to obtain, for his personal benefit, the unilateral right to pack the Board with three additional directors of his choosing,” the suit reads.

“In doing so, Kalanick acquired a disproportionate level of influence over the Board, ensuring that he would continue to have an outsized role in Uber’s strategic direction even if forced to resign as CEO.”

The suit is a clear attempt by Benchmark to increase its power on a board suffering from infighting. Late last month, one of Uber’s top candidates to replace Kalanick, former Hewlett-Packard CEO Meg Whitman, withdrew herself from consideration at least partially due to the conflict on the board.

In a statement to CNBC, a spokesperson for Kalanick called the lawsuit “completely without merit”:

The lawsuit is completely without merit and riddled with lies and false allegations. This is continued evidence of Benchmark acting in its own best interests contrary to the interests of Uber, its employees and its other shareholders. 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. Travis will continue to act in the interests of Uber and all of its stakeholders and is confident that these entirely baseless claims will be rejected.

Uber declined to comment on the lawsuit to HuffPost.