A group of present and former Tinder employees, including many of the company’s founders, have opened a lawsuit against Match Group and IAC concerning the valuation of their stock options.
Jonathan Badeen, Paul Cafardo, Gareth Johnson, James Kim, Alexa Mateen, Justin Mateen, Joshua Metz, Ryan Ogle, Rosette Pambakian and Sean Rad allege that IAC and Match manipulated financial data during a bank analysis in 2017.
The manipulations were intended to undervalue the startup, they assert, decreasing the value of early employee options.
The 55-page lawsuit begins: “Tinder is one of the fastest-growing startups in the history of the technology industry. The Tinder Plaintiffs are the founders, current executives and early employees who built Tinder. (…) This case arises from Defendants’ scheme to cheat the Tinder Plaintiffs out of billions of dollars by violating their contractual rights as optionholders.
It argues that in 2014, Match and IAC signed written contracts awarding stock options to the plaintiffs. These options represented over 20% of the value of Tinder.
The plaintiffs were then invested in the company – having “skin in the game”. They could sell and hold their options in the future. Because Tinder was a private company, however, they were not free to sell their stakes publicly / at any time.
The parties agreed on a series of four fixed future dates where the stock options would be independently valued. The holders could then decide whether to sell back to the parent company, or whether to continue to hold.
The four ‘Scheduled Puts’ were initially timetabled for May 2017, November 2018, May 2020 and May 2021.
With Tinder’s value projected to skyrocket, the plaintiffs suggest that the umbrella companies conspired to lie about the company’s value at the May 2017 Scheduled Put (which occured in private, not damaging public perceptions).
To accomplish this, Match and IAC are said to have installed “loyal” Tinder executives, including a new CEO in Greg Blatt, allowing them to “seize control” of the valuation process. A “disinformation campaign” using false figures was allegedly carried out, creating an “alternate universe” and leading Tinder to be (under)valued at $3 billion internally.
After this low valuation, the defendants allegedly proceeded to merge Tinder “out of corporate existence”. In doing so, they cancelled the next three Scheduled Puts. The stakes in Tinder were converted into Match Group shares at an unrealistic rate of exchange, permanently removing the opportunity for the founders’ to benefit from their 20% Tinder ownership.
The “scheme” was almost derailed, the plaintiffs say, when Blatt groped VP of Marketing and Communications Rosette Pambakian at a party in Los Angeles (an accusation). Because Blatt was a key part of the devaluation, however, they suggest Match and IAC sought to “whitewash” his conduct.
Two weeks after the merger and devaluation scheme was completed Blatt was allowed to retire with generous compensation, say the plaintiffs.
The lawsuit says that since the private valuation, Match Group executives have celebrated Tinder and sought to tell a success story about the brand. This contradicts their earlier devaluing.
It reports that in private, Tinder executives predicted a revenue collapse of around 90%. Weeks later, they are said to have painted a very different picture in the August 2017 public earnings call.
A plaintiff press release accuses the defendants of “deception, bullying, and outright lies”.
Read more here.