Web-based TV creative ad agency Spot Runner is being sued by WPP Group for securities fraud and breach of contract, AdAge reports. WPP, which helped lead a $40 million funding in the Los Angeles company about three years ago, is accusing the Spot Runner of failing to disclose a stock sale to other shareholders. The UK ad holding company is particularly incensed that Spot Runner allegedly boasted of WPP’s stake in it to attract buyers. WPP holds a 3 percent stake in the company, sources told paidContent.
WPP’s suit names Spot Runner CEO Nick Grouf and co-founder David Waxman, as well as investors like Pilot Group’s Bob Pittman, Index Ventures’ Danny Rimer and Battery Ventures’ Roger Lee. Peter Huie, Spot Runner’s general counsel, was also targeted too.
In a complaint (pdf embedded after the jump) filed April 9 in federal court in California, WPP said it is seeking about $13 million in damages. It also wants Spot Runner to cover legal fees. In its filing, WPP says that rather than try to improve and build up the company, Spot Runner “perpetuated a ‘pump-and-dump’ scheme in which they aggressively promoted the company to new investors (often by promoting that WPP was an investor in and supporter of the company) and then sold new investors large quantities of their own secondary shares at ever-increasing valuations.” WPP alleges the fraudulent activity took place between Feb. 2006 and March 2008. More after the jump
For its part, a Spot Runner rep told paidContent that it will fight the suit, which was filed in U.S. District Court in the Central District of California. The company declined to offer more than a statement: “This situation is unfortunate; we had hoped that we would have had a long relationship with WPP. We believe the claims are without merit and we will vigorously defend against them, including taking all necessary legal action to protect Spot Runner
Wow! This is major news!
These guys won't have any friends to back them up because their company has been a complete failure. If these guys did pocket millions of dollars without disclosing it to other shareholders that would be a big deal. It also must be the case that a small private company cannot fight a giant like WPP so my guess is that Spotrunner ends up filing for bankruptcy sometime in the future.
Grouf has a successful track record of self-promotion (cashing out w/o disclosure) and leaving investors holding the bag. This isn't anything new. Look at his prior "successes." There is a pattern that makes one wonder…Its surprising he didn't get caught for this sort of thing sooner.
That is a great article. I wonder if the same thing will happen to Hulu?
Amazing. I had heard about Grouf being shady but this is ridiculous if true. This guy's stock selling career is over, that is for sure.
J.M. Tanzer et al may certainly uncover a lot of dirt in this case if he digs deep enough. It will be interesting to see how the revelations of how the venture community may unjustly profit will affect the future of technology finance.
Here's some info lost and now resurrected. It's Wikipedia's warning to Spot Runner to knock off the surreptitious whitewashing of their negative information from the wiki. This is what Ponzis do, too. They build up their positive press. Suppress the negative press. Then sell shares at inflated rates. Just speculation, but If fully investigated, there could probably be found a long list of independent bloggers, consultants, technology sites, and reporters at Business Week, CNN Money and more that were on Spot Runner's, Index or Battery's payroll. That influence was very likely used to pump up the perception that the company had a future – which it most likely did not, according to some employees.
The Malibu Project will likely turn out to be a smoke screen, in effort to make Spot Runner look like it had a technology component. Let me tell you that NO agencies or TV networks would ever be interested in this product for long. There is just no use for it. Malibu in my opinion is simply a pitch tool for attracting additional (gullible) investors. This may be more evidence of the strategies ultiized by this house of cards. Be warned: Most other endeavors in TV advertising that are venture funded will likely have the same dubious foundations. TV advertising is already very efficient, but is a traditionally low profit business. If it's made to appear to be high-profit, then someone is getting screwed – the investors or the clients.
Here's the Wikipedia to Spot Runner warning:
Talk:Spot Runner – Wikipedia, the free encyclopedia 3/20/09 1:29 PM
http://en.wikipedia.org/wiki/Talk:Spot_Runner
Talk:Spot Runner This page was last modified on 19 March 2009, at 01:17.
From Wikipedia, the free encyclopedia
"@Spot, your changes are welcome but you can't just come in and rewrite the entire page based on your whim, especially when removing a bunch of negative information and adding only positive. It makes it seem like astroturfing is being done by someone at the company, which hopefully is not your intent. Please propose and discuss any sweeping changes here prior to making them. We're open to corrections in the article but we need to do it in a controlled manner. I have tried to integrate the spirit of your major changes in good faith, so hopefully we have a common ground to start discussion for any further modifications.
Please also remember as per http://en.wikipedia.org/wiki/Wikipedia:CONFLICT it is important to declare if you are an employee or have a vested interest in an article you are editing. In reviewing your edit it really does read as marketing material.
It is important because if it does turn out that you are an employee, shareholder, etc. it can create very negative press for both Wikipedia and Spot Runner…"
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I think we are going to find out that this is indeed some sort of criminal conspiracy. I read the complaint and the things this management team and board did is completely outrageous if true.
Meanwhile, there's a company in Europe (based in Amsterdam) called Spotzer who's doing what Spot Runner purports to be preparing to do…and they're doing it well with a staff much smaller than Spot Runner's inflated ranks.
But I suppose a company needs a few hundred people sitting at desks to justify raising $111 million (back to late '90s mentality).
As I recall from a conversation with one of Spotzer execs, they copied the Spot Runner low-quality templates, high air time cost model, and were hoping to pump up to be attractive to acquisition specifically by Google. This sounds like the same path that Spot Runner took to its destruction. I sincerely doubt that Spotzer has the long view of things. I doubt that they are profitable, and are, as they stated earlier, still dreaming of a Web 2.0 exit strategy that will forever elude them.