WPP Didn't Read the Fine Print in Spot Runner Stock Deal
A close examination of a recent legal filing by Spot Runner in its battle with WPP reveals that Spot Runner hoodwinked WPP into thinking that the founders were not selling their stock while WPP was buying it. Or, depending on whom you sympathize with, WPP isn’t very good at reading the fine print.
Either way, the lesson for Spot Runner investors is: be very, very careful when dealing with this company. (That lesson is underlined by a separate suit in which another founder won a $2.2 million ruling that he was cheated out of stock by Spot Runner.)
- The motion in the WPP case is summarized by PaidContent here. You can download a copy for yourself here.
WPP claims its 3 percent stake in Spot Runner suffered $10 million in damage because while WPP was buying stock in the company the founders — Spot Runner CEO Nick Grouf, co-founder David Waxman and others — were selling the stock they owned personally to other investors without telling WPP, thus holding back further rises in price.
But look at the tick-tock of events as described by Spot Runner. If you read closely, you’ll see that Spot Runner’s case relies on the argument that “we didn’t tell you the founders were selling because you didn’t specifically ask us whether the founders were selling.”
April 2007: Spot Runner sends WPP a letter offering stock in the company.
May 10, 2007: Spot Runner sends another letter to WPP informing the company that a different investor wants to buy more Sport Runner stock, and that Spot Runner is offering to help find existing stock holders who may want to sell to the investor.
May 21, 2007: WPP writes to Spot Runner asking questions about buying Spot Runner stock: “is there an existing investor and/or founder selling existing shares related to this offering? If so, who is selling shares and how many shares are they selling?”
Spot Runner responds: “[t]his offering does not involve the sale of any existing shares. It is an entirely new issuance by the Company.”
May 24, 2007: WPP buys $1.7 million in Spot Runner stock.
June 2007: Various existing stock holders including the founders close their stock sales to the other investor.
April 9, 2009: WPP figures out that it was buying new stock from Spot Runner at the same time the founders were selling their old stock, is furious and sues.
You can see the confusion: WPP is trying to figure out who is selling existing shares and Spot Runner replies, “the shares we’re selling you are newly issued shares by the company, not existing shares.”
Harsh!
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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