WPP Accuses Spot Runner of $54 Million Scam; Was Sorrell Asleep at the Wheel?
WPP has accused Spot Runner – the turnkey online TV commercial buyer that in theory gave even the lowliest of advertisers cheap access to national TV advertising — of operating an investment scam that diverted $54 million to the founders’ pockets (see document below).
UPDATE: Spot Runner brass have responded to the allegations in a message to their staff. See full text below.
According to a suit filed in federal court:
The Company has raised approximately $100 million from investors to date, and has already expended approximately $80 million of those Investor dollars without completing development of its principal product.
What is most surprising about the allegations is that Spot Runner’s bosses — CEO Nick Grouf, CTO David Waxman and ex-AOL COO and Spot Runner director Bob Pittman — somehow allegedly grifted money out of WPP for three years before being discovered by WPP chief Martin Sorrell.
The Spot Runner execs rewarded themselves shares in a “pump and dump scheme,” according to the suit. They took investment money from WPP and then sold extra shares to others without telling WPP, which had a contractual right of first refusal on resold shares, the suit says. The hidden sales had the alleged effect of diluting the value of WPP’s stake.*
They also never provided audited financial statements to WPP, the suit claims.
Even though WPP had been investing in Spot Runner since 2006, it was not until this year that the holding company realized something was wrong. The suit states:
By January 2008, WPP was becoming increasingly frustrated with the opacity of the Company’s management …
Ultimately, Spot Runner lost $80 million on revenues of $14 million, the suit states.
Bonus points: If you spotted that Sorrell described his company in the suit as “WPP, a Luxembourg corporation” (!)
* Correction: The suit does not allege that the stock sales were dilutive to exisiting stock, as initially noted here. Rather, the allegation is that the Spot Runner execs resold their own stock in violation of an agreement to offer secondary stock sales to WPP first. Apologies for the error.
Hat tip to Gawker.
WPP Sues Spot Runner
As you may have heard, WPP, a minority shareholder (less than 3%) in Spot Runner since 2006, filed a lawsuit against the company and its board members primarily related to the sale of Spot Runner stock and Spot Runner’s communications with WPP. This situation is unfortunate, as we appreciate and value the relationships we have with all of our investors and we had hoped for a long and supportive relationship with WPP. We believe these claims are without merit and will vigorously defend against them, including taking all necessary legal action to protect Spot Runner’s reputation.
We feel strongly that WPP’s complaint contains many baseless accusations and want to give you a broader perspective on the matter. This lawsuit is unrelated to our products and services – it is centered on legal agreements entered into with WPP, a sophisticated investor, regarding the way that shareholder stock sales were handled. WPP alleges that Spot Runner’s board members failed to disclose to WPP the stock sales by shareholders, allegedly in violation of the board’s obligations to stockholders, among other things.
We are confident that Spot Runner complied with all of its obligations under the various shareholder agreements. When these sales occurred, there was overwhelming demand for Spot Runner stock and the company did not want to dilute existing shareholders by issuing new shares. Therefore, the founders (in 2006) and the board members and other preferred shareholders (in 2007 and early 2008) agreed to make room for important, new investors and respond to their desire to invest in Spot Runner by selling their own shares. In 2007 and 2008, WPP and other preferred shareholders were given notice that the sales were occurring, and they had the opportunity to participate in the sales. In fact, WPP signed various documents acknowledging this opportunity.
Spot Runner and all of its employees conduct business with the utmost integrity. Our team, technologies, and products and services are core assets of which we can all be proud. It is because of your hard work that we have come this far. To that end, we continue to drive hard toward successfully launching Project Malibu and realizing its full potential. You also should know that our board members remain majority shareholders in Spot Runner – a concrete sign of their commitment to and confidence in the business.
Our outside counsel will work with the board and management team to develop a formal reply, which ultimately will be filed with the court. These legal proceedings should not affect our day-to-day operations.
We are grateful that we can count on you to remain focused on serving our clients and partners to the best of your abilities.
Thank you again for all that you do for Spot Runner.
Jim Edwards, a former managing editor of Adweek, has covered drug marketing at Brandweek for four years, and is a former Knight-Bagehot fellow at Columbia University's business and journalism schools. Follow him on Twitter or send him an email.
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