Fungible stockholder and ex-employee Naveen Gupta has filed a lawsuit against the company, seeking to “investigate potential wrongdoing and breaches of fiduciary duties.”
The allegations are around convertible promissory notes the business issued, with the claim that “after-the-fact” down-round fundraising may have ensured that execs and other chosen stockholders received more of the proceeds from Microsoft’s $190 million acquisition of Fungible in December 2022 than they otherwise would have.
Gupta alleges that neither he nor other stockholders were given the opportunity to participate in a Series D round of financing, claiming only those who were aware of Fungible’s discussions with Microsoft were allowed to participate.
The lawsuit, case number 2023-0007-JTL in the Delaware Chancery Court, asks that Gupta be allowed to inspect Fungible’s books and records in connection with the Microsoft acquisition, including its stockholder list from June 2022 and board-level records relating to strategic transactions, promissory notes and Series D financing activities from March 2022.
The (redacted) lawsuit claims: “The Company’s founders now seek to cash-out Plaintiff, as well as the rest of the Company’s employees, at a grossly unfair price and substantial discount to their stock option exercise price.”
It states: “Because it appears that the company provided controlling stockholders, including [redacted] and [redacted], with the Series D Preferred Stock in a self-interested transaction to divert Merger consideration from other Fungible stockholders, Plaintiff has demonstrated a credible basis to suspect wrongdoing.”
Gupta had been a Fungible employee for four years, with stock options through which he became a Class A common stockholder.
The main event that led to the Microsoft acquisition, referred to as a merger in the court document, was that Fungible failed to sell enough of its Data Processing Unit (DPU) and FS1600 network storage file storage system, meaning it was in danger of running out of money.
We have seen a copy of the redacted public filing document for the lawsuit.
The suit alleges that certain persons may have enriched themselves unfairly through the convertible promissory note and Series D preferred stock rounds at the expense of common stockholders, and should not have done so.
Now we wait to see if the court grants Gupta’s request. Then, once he inspects the books, we’ll see if he then sues Fungible and the unnamed stockholders for breaching their fiduciary duty.