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Startup Fungible, recently acquired by Microsoft, was accused of defrauding shareholders, and its management was accused of unjust enrichment.

Published: 2023-01-17

A shareholder and former Fungible employee, Naveen Gupta, filed a lawsuit against the company for "possible wrongdoing and breach of fiduciary duty." The reason for the proceedings was the sale of Fungible to Microsoft Corporation. Rumors of the sale appeared in mid-December 2022, but Microsoft officially admitted to the acquisition in early January.

The amount of the transaction is not specified: according to unofficial information, it amounted to approximately $190 million, while the company itself has received more than $300 million in investments throughout its existence. However, the transaction itself was not so transparent, in fact, it completed the liquidation and the "hidden" round of financing. Gupta said that neither he nor other shareholders were given the opportunity to participate in the series D funding round (formally, the last public was round C). It is alleged that only those persons who knew about the negotiations between Fungible and Microsoft were allowed to the process.

As a result, according to the plaintiff, the management and some elected shareholders received unreasonably high income from the transaction. The case will be heard in the Delaware Chancery Court. Naveen Gupta intends to seek permission to access Fungible's books and other documents related to the Microsoft deal, including a list of shareholders since June 2022, statements from the board of directors, etc. Gupta has been an employee of Fungible for four years, holding stock options that became a class A ordinary shareholder.

He states that some individuals may have profited from their Series D convertible notes and preferred shares at the expense of the common stockholders. Essentially, it's about Fungible's leadership enriching itself in an unannounced liquidation-preferential funding round. Many people at Fungible put up with being underpaid for years in the hope of making money later on stocks, as is often the case in startups, and ended up with packages of almost worthless and practically worthless limited stocks.