Legal Action Against Three Members of the Board of Otonomos for Unlawful Actions Against the Company
Following my post of 22 September, today my legal team commenced legal action against three members of the Board of Otonomos in trying to remove me as the Company’s CEO.
In an effort to come to a swift resolution following their actions that day, on 29 September my legal team wrote to invite each of them to step down from the Board by Tuesday 3 October.
As of today, none have resigned and we are therefore left with no choice than to commence legal action, holding them personally liable for all losses suffered as a result of their unlawful actions.
It would not be appropriate to detail the particulars of the claim here, and we should allow the court process, and a parallel arbitration procedure set to commence soon, to run its course.
However, it is appropriate for the wider public to know the facts, each of which we can substantiate, that lead to the actions the Board took on 22 September.
Predictably, my Medium post of that day was immediately followed by allegations of defamation. In particular, two separate letters from lawyers acting for Chris Kaptein on behalf of Dymon Asia Ventures (“DAV”), the small VC on whose behalf Chris occupies one of the four Board seats, were clearly intended to fright me into silence and discourage me from taking legal action.
Our response is that I feel I have a duty to many people, including early supporters of Otonomos, employees, shareholders, clients, the startup and investment community in Singapore and beyond, the broader Ethereum and blockchain communities, and perhaps most importantly other Founders who pour their soul in bringing their ideas to fruition, to communicate the truth about what happened.
The truth is that is that when I, as majority shareholder in Otonomos with over 62% of the shares, stood in the way of DAV building up a bigger stake in the Company, by questioning a recent transaction in which Chris was looking to purchase shares from another investor, Startupbootcamp (“SBC”), at around a tenth of the valuation of our forthcoming A-Round, Chris colluded with other members of the Board to try to terminate me as CEO.
I was against DAV’s acquisition of SBC’s shares for the following main reasons:
- Chris, as Member of the Board, was routinely informed about the progress of the intent by one of the world’s major stock exchanges (“the Exchange”) to take a stake in Otonomos, which resulted in the Exchange commencing formal due diligence on the Company in August.
- In addition, Chris was informed of other indications of interest from other investors who I was in talks with about investing in the Company at a proposed pre-money valuation of USD 50 million.
- Chris was aware that the information communicated to him was confidential, not accessible to the public and had material effect on the price of the Company’s shares.
- Despite being in possession of such information, in late July, just before commencement of the formal due diligence by the Exchange and the opening of our A-Round, Chris procured an agreement to purchase SBC’s 5.37% stake in the Company at a valuation of just over USD 5 million — a far cry from the valuation of the Company of USD 50 million the Board had agreed to use in talks with the Exchange and other candidate A-round investors.
What emerges from this is that Chris seems to have used confidential, price-sensitive information gained from his position on the Board to attempt to put DAV in a more advantageous position in its dealings with SBC.
This is further evidenced by a Whatsapp exchange between myself and one of Startupbootcamp’s principals, who admits to feeling “cheated” after he discovered material information was withheld to him (Note: the extract has been redacted to prevent disclosure of the name of the Exchange):
In light of this, I formed the view that Chris’ actions were not in the Company’s best interest, as SBC would have been misled into disposing of its shares in the Company at gross undervalue, potentially leaving the Company exposed. My attempts to shield the Company from potential liability was in compliance with my fiduciary duties as Chairman of the Board.
I repeatedly pleaded with DAV, including with its partner Jinesh Patel, to let the transaction with SBC lapse. Below is an extract of a Whatsapp exchange with Jinesh from the early morning of 21 September which is self-explanatory:
Later that day, I emailed the legal opinion I obtained related to insider trading to Remington Ong, who holds a Board seat on behalf of Shanghai’s Fenbushi Fund, Otonomos’ lead investor in last April’s Seed Round.
The day after, in the afternoon 22 September, I found myself ambushed in a meeting in which 3 members of the Board tried to terminate me as CEO.
Revealingly, since my purported termination on 22 September, Chris has reportedly roamed the floor of Otonomos’ offices doling out promises of increased equity stakes for key employees at the Company if they stay loyal to the newly installed regime.
Secondly, Manogaran Thanabalan, CTO at the Company, was installed as puppet interim CEO on the promise of more shares, which explains his turncoat stance at the September 22 meeting.
Finally, I understand Chris, with Mano’s support, has also indicated to staff and candidate investors that DAV would be willing to provide bridge financing to the Company in return for equity at a valuation similar to last year’s Seed Round, without consulting other major shareholders in the company who would all significantly dilute as a result.
From the above, it is clear that the present allegations against me, in which minor household issues have been whipped up into a justification to find Cause for my alleged termination, have been contrived so as to interfere with the vesting of my Founder shares, the bulk of which I would forfeit at original cost if Cause can be established.
In essence, the Board’s actions are a calculated, concerted effort to destroy value in Otonomos so that DAV, who hold 3.51% of the Company, after finding itself frustrated in its plan to acquire shares on the cheap from SBC, can achieve its goal of building a bigger stake through other means, even if those means include sacking the Founder who brought the business to profitability within a short period of time.
CECI N’EST PAS UN VC
Many people have asked me since the events of 22 September how DAV, who invested only USD 300,000 at the time of our April 2016 Seed Round, and who they perceive as a dilettante VC whose principal, Chris (by his own admission) is known to have been fired from his previous fund, Arbor Ventures in Hong Kong, can possibly force the Company into a situation which is clearly detrimental to its value and to all other shareholders.
My answer is simply that it is DAV’s modus operandi: DAV is not a VC but a distressed fund that has no qualms in destroying value so they can buy themselves in cheaply.
There is a precedent that further validates this. About a year or so ago, DAV ominously got rid of the Founder of one of its only 5 portfolio companies to date. From what we understand, shortly after, DAV recapitalised the company on very beneficial terms to DAV.
The Founder was armtwisted into signing a non-disparagement agreement which prevents him from going public about what really happened. What really happened is that DAV engineered to defenestrate a Founder, which should only ever be considered in extreme circumstances of sexual misconduct or massive fraud.
In the case of Otonomos, the forensics of the court proceedings will make it clear for everybody to see that there was no such thing happening under my tenure as CEO.
As is evident from the profitability of Otonomos within 18 months of its inception, I worked tirelessly for the benefit of the Company, to the exclusion of much else.
This modus operandi is of course not the face DAV presents to startups looking for funding, including Otonomos back in April 2016, when we opened our Seed Round.
At that time, I thought DAV were overall good guys who would care for the Company.
Secondly, being based in Singapore, I thought the Company would benefit from the contacts DAV claimed to have which, on the basis of the names Chris and Jinesh dropped, I expected would lead to paid blockchain projects for Otonomos in Singapore.
Third, Chris routinely claimed that Temasek, the Singaporean Sovereign Wealth Fund, had invested in DAV. This carries some weight, as for any company in Singapore, a direct line with Temasek can be beneficial (I only recently learned that Temasek apparently never invested in DAV).
On the basis of the above, I thought giving Chris a Board seat despite the small size of DAV’s investment was justifiable.
The investment was small because at the time, DAV had just launched with around USD 5MM, most of which was internal money from DAV’s parent, a macro hedge fund in Singapore.
As a result, Chris spent most of last year trying to close the fund and on numerous occasions, he asked me to pitch with potential investors for the fund, in the hope of reaching their first closing threshold of USD 25MM.
Otonomos being one of DAV’s first investments, and given our outstanding metrics, we were used as the poster boys of DAV’s investment fund and at least one such meeting at which we presented lead to a family office investing into DAV.
This perpetual fundraising mode caused DAV considerable strain and on several occasions did Chris and Jinesh cry on my shoulder over drinks about how badly they were treated by Dymon’s principals.
At one such drink, Chris even asked me whether he should sue his former employer Arbor Ventures in Hong Kong, something I advised him against.
Overall, I felt the relationship was quickly turning rather one-sided: was I not supposed to be the startup receiving help from my VC rather than the other way round?
This also partly explained why I was looking to diminish DAV in our forthcoming A-Round by denying them a Board seat, which in turn explains the vindictive actions resulting in Chris taking a ringleader role in the Boardroom coup of 22 September.
Since, me and my family have been subject to what can ony be called outright bullying, including Rem denying me access to my office, Mano cancelling my employment pass and my family’s dependant passes in a deplorable attempt to evict us from Singapore and disable me from putting up a fight for the Company, Mano airbrushing any mention of me as Founder of Otonomos by hastily cloning the website, and various degrees of online and offline pettiness which do not merit detailed listing here.
A HANDMAID’S TALE
The overall picture emerging is that of a Handmaid’s Tale-style thuggish, authoritarian coup by 3 colluding Board Members with the calculated aim to gain control of the company and take the Founder’s brainchild away from its legitimate parent.
To right this wrong I feel the only way is to publicly denounce this travesty of shareholder democracy, and this Medium channel will be used to communicate with so many of you who have reached out to me with support and asked me how they can help.
We will shortly be launching a litigation contribution campaign on Ethereum which will allow anybody to make a contribution in Ether towards the costs of legal action.
Any contribution, no matter how small, will help bring the current Board to account and open the way towards a solution for Otonomos.
Stay tuned for more details soon.