
Toptal suit against co-founder dismissed - ivanech
https://www.pacermonitor.com/public/case/29530665/TOPTAL,_LLC_v_BENESCHOTT
======
dang
The title originally was "Toptal sues co-founder $NAME for fraud". Since the
case was dismissed, I've updated the title.

Edit: we've also replaced references to that person's name with "[redacted]"
below. The reason is that HN threads tend to rank highly in search results. We
don't want a situation where Googling some individual's name will forever lead
people to an old thread like this, where they won't find important relevant
information that, e.g., the case was later dismissed.

Generally we find out about these things because individuals (or, less
optimally, their lawyers) email us and ask for threads to be deleted. We tell
them that we don't delete entire threads because that would be unfair to the
commenters who participated, but that there are usually other things we can do
to help resolve legitimate privacy concerns while preserving the rest of the
thread. This case was an example of that.

------
vitalychernobyl
Just read through the whole thing (don't know why) - here is the synopsis:

It doesn't really talk about any ownership issues regarding the CEO - it's
basically saying that [redacted] (an early employee) embezzled/mis-used money
and when fired, started claiming he owned part of the company or was entitled
to compensation.

According to the thing - [redacted] was hired a COO as an early employee with
no equity, they claim he was unhappy, and that he embezzled a bunch of money
by paying his girlfriend, getting bonuses, and misusing the company credit
card (some of this he repaid). But once they found out, they fired him, and he
started claiming he owned equity and/or was owed severance.

They want the money back, him made to shut up, and possibly drawn-and-
quartered.

So it doesn't look like this is much broader than that .. again - according to
the doc.

~~~
throwaway4422
Throwaway for obvious reasons. I was at a startup in the valley where they got
one of the cofounders to work for sweat equity for over a year then got him
deported to his home country to remove him from the picture (was reliant on
employer sponsored visa. They 'accidentaly on purpose' didn't turn up to his
immigration meeting). He managed to dodge this by enrolling on some bullshit
PhD to get back into the country but then they screwed him with trumped up
claims of embezzling company funds. All I would say is, don't jump to any
conclusions with your interpretation of this case.

~~~
throwaway4519
Co-founders definitely do horrible things just to retain equity for
themselves.

Another true story: A team co-founded a company together. They all agreed to
be co-founders and split the equity as fairly as possible.

Co-founder X was put in charge of legal, since noone else wanted to do it.
Unbeknownst to the others, X allocated a small pool of shares for everyone
except for X, taking the vast majority of the company for himself.

When everyone received their share agreement, they did the division against
the "total shares" listed in the agreement. Everyone's percentages came out as
expected, since they falsely believed the "total shares" represented the total
shares in the company -- rather than in the pool.

To illustrate this, X owned over 83% of the company, while the next highest
co-founder Y (the CTO) vested < 0.33%/year. Amazingly, X and Y had both agreed
to take identical pay (below living) and make identical sacrifices, i.e.
quitting their jobs to go full-time together.

Y left after a year, having found out months prior and given X time to resolve
it in (misplaced) good faith. X managed to get VC investment only a few months
later -- by not mentioning that the company's CTO had quit only a few months
earlier.

When the VCs found out about Y, X then informed Y he was never the CTO but a
"freelancer" \-- even though Y had joined with the intention of being CTO,
performed all CTO duties, and was called the CTO by everyone involved. The
other co-founders were informed to write they were retroactively "Founding
Members" rather than "co-founders."

Of course, if the co-founders are experienced about business it would be
difficult to pull this off. For example, you should insist on seeing the cap
table even if you believe you know the percentages.

However, this happened to intelligent co-founders right out of college, who
even had a parent's lawyer friend look over the contracts.

~~~
azernik
> who even had a parent's lawyer friend look over the contracts.

That lawyer needs to be sued for malpractice. This is their _job_.

~~~
sah2ed
> _That lawyer needs to be sued for malpractice. This is their job._

Why do you think that? Perhaps you parsed "parent's lawyer friend" as
"parent's lawyer"?

The former is likely doing a favor and would not be paid the full sticker
price when rendering such a service since the transaction is not truly at
arm's length. The latter is more likely to be sued for malpractice since you
would be paying the full sticker price.

~~~
jjeaff
How much you paid would have no bearing. If you paid $1 but officially engaged
any lawyer, friend or not, they would be fully liable for malpractice.

------
thesausageking
It's curious that Toptal is structured as a single member LLC. That would make
it difficult/impossible for a VC to invest. And, while they claim they raised
a round from a16z, it's not listed on a16z's full list of investments:

[https://a16z.com/investments/](https://a16z.com/investments/)

That would support the notion that Du Val promised to convert and issue stock
to other parties and never did.

~~~
rococode
Strange that it's not on the website there. I don't know if the investment
really happened either, but there are a couple links on a16z which seem to
suggest they did invest in TopTal. Some articles reference a seed round.

(these links are all empty apart from a logo and a date ranging from 2013 to
2016)

[https://a16z.com/toptal-2/](https://a16z.com/toptal-2/)

[https://a16z.com/toptal-logo-3/](https://a16z.com/toptal-logo-3/)

[https://a16z.com/toptal-logo/](https://a16z.com/toptal-logo/)

[https://a16z.com/toptal/](https://a16z.com/toptal/)

~~~
sandmansandine
Looks like it shows up on their seeds page in some older snapshots:
[https://web.archive.org/web/20150810161359/http://a16z.com/s...](https://web.archive.org/web/20150810161359/http://a16z.com/seeds)

------
markbnj
Ah yeah Toptal. I did an interview thing with them 3 or 4 years ago. I don't
remember the details, except that it was online, moderated, timed, three
python algorithm challenges. I nailed the first two and went overtime on the
third, and was told I could "try again in six months." I remember it being an
unpleasant experience.

~~~
dejv
And at the end they would offer you 20 or maybe just maybe 30 USD/hour
maximum. And with hour they do mean billable hour.

------
bruceb
So someone explain this. The amount seem to be in the low 100k area? Why
bother suing?

Du Val has hoarded all this stock, apparently it has worked, you can argue the
ethics of it, but he seems to have pulled it off. Why not just write off this
relatively small amount for a company with $200m revenue? Why draw attention
to yourself and your company?

Is it an ego thing?

~~~
vitalychernobyl
Looks like it was more than that (plus he's now trying to claim he owns a part
of the company and/or entitled to $2MM.. again, according to the doc)

"[redacted]'s at-will employment was terminated for the reasons herein
explained, and [redacted] left Toptal’s employ unjustly enriched, and with
amounts owed by him to Toptal in the form of unpaid loan amounts, unreimbursed
credit card charges of a purely personal nature, and restitution for amounts
caused to be embezzled and diverted to his girlfriend and for an unapproved,
self-awarded bonus, totaling at least $629,850.46."

~~~
bruceb
Thanks. I just read first the few pages, thought it was lower.

If the COO just kept quiet, I think it would have been worth it to forget even
$630k, but I guess could say it also sends a message.

I don't think most people on HN knew about the interesting events related to
ownership of Toptal, so good for us the suit happened.

------
pwncake
Seems like the other way around:
[https://www.theinformation.com/go/4146dbb37f](https://www.theinformation.com/go/4146dbb37f)

~~~
neilv
That theinformation.com article alleges that Toptal CEO Taso Du Val has all
the stock, despite that employees and investors, including Andreessen
Horowitz, expected to get stock.

Since our industry has become the 1980s Wall Street of ethics, not much
behavior surprises me anymore, but a successful startup allegedly backstabbing
a prominent VC does.

~~~
bitL
You'd be surprised how many "darlings" of our industry screwed their best
people when the promises were due (even written ones) and plans changed.

~~~
staticautomatic
What's interesting is that usually people get screwed because the
founders/execs raise too much money. Here, they didn't raise enough.

------
throwtal
There is an outstanding case by [redacted] in Collier County Florida, case
number: 11-2019-CA-002689-0001-XX

Here's the pdf:
[https://uploadfiles.io/791hz3tg](https://uploadfiles.io/791hz3tg)

If the link doesn't work, you can access it:

Go to
[https://cms.collierclerk.com/cmsweb](https://cms.collierclerk.com/cmsweb)
Click Case Search In "Case Number" input "11-2019-CA-002689-0001-XX" (no
quotes) Click Search Click Dockets Click the paperclip next to Docket Num 2

------
staticautomatic
Link to the full complaint:
[https://gofile.io/?c=dnaTwk](https://gofile.io/?c=dnaTwk)

~~~
a13n
Directly to the PDF: [https://srv-
file6.gofile.io/download/dnaTwk/Toptal%20v.%20Be...](https://srv-
file6.gofile.io/download/dnaTwk/Toptal%20v.%20Beneschott%20Complaint.pdf)

------
toptalemployee
[redacted] sued Toptal for 100M, case number 11-2019-CA-002689-0001-XX in
Collier County.

My other post was shadowbanned, here's the pdf:
[https://uploadfiles.io/791hz3tg](https://uploadfiles.io/791hz3tg)

------
altmind
Can anyone provide a link to full complaint? Pacermonitor is not free and only
shows the preview of the 1st page.

~~~
staticautomatic
I'll be happy to download it but don't know where to host it. Suggestions?

~~~
ikeboy
Install the recap extension which posts it publicly on courtlistener.

------
chadash
TLDR; Toptal started small and took a little funding early on, but now has
over $100mm in annual revenue and got there mostly through organic growth
rather than follow on investment rounds.

The company seems to be wholly owned by one of the co-founders. The other co-
founder, who was in college when the company started, doesn't have an equity
stake at all. Presumably he had a salary from day 1. There seems to be some
sort of agreement that if the company restructures, he _might_ get equity at
some point, but this isn't necessarily going to happen.

Founder 2 (no equity) is accused of defrauding the company by misusing funds
and hiring his girlfriend at an above market rate. The language of the
complaint indicates that he's upset about not having an equity stake.

------
dangxiaopin
Looks like something you don't want to touch with a ten foot pole as an
employee or an investor (or user for that matter). Avoid vexatious litigants.

------
crb002
Toptal is a massive ADA violator for those with ADHD screened out by
competition programming style interviews, but are great programmers under
routine conditions.

~~~
pault
Doesn't that apply to every company that does technical interviews? What about
people with anxiety disorders? Any interview at all is discrimination.

~~~
pkaye
> What about people with anxiety disorders?

What kind of accommodations would suit these individuals?

~~~
swift532
Relatively small but not too small take home project plus live code review and
discussion of approaches they took in the project.

~~~
pkaye
When I used to be a manager who did hiring, I was always open to accommodating
the candidates needs. Like instead of whiteboard, using paper or laptop. So
far nobody asked for take-home projects. A few times people asked for a second
chance and I'd agree to it.

------
throwaway2834
There is another lawsuit involving TopTal in Collier County (where [redacted]
lives):

[https://www.filebin.ca/4rhKFRhk9bk9/11-2019-CA-002689-0001-X...](https://www.filebin.ca/4rhKFRhk9bk9/11-2019-CA-002689-0001-XX.pdf)

------
ianmobbs
> 65\. Also after the termination of [redacted]'s at-will employment, again to
> extract even more money from Toptal and continue to unjustly enrich himself
> at Toptal’s expense, [redacted] has also made baseless and unfounded claims,
> that he is entitled to $2 million in severance, the monetary equivalent of a
> two-month leave of absence, and a $40,000 bonus.

Dude was getting paid $!,000,000 a month? Damn.

~~~
vitalychernobyl
No :) (i read it that way too at first)

It's $2MM + 2mo + 40k

~~~
ianmobbs
Ah - thanks for the clarification :)

~~~
egdod
I’m a lawyer, and it made me do a double take too.

------
bmurray7jhu
Courtlistener has the full docket without a paywall:
[https://www.courtlistener.com/docket/16048273/toptal-llc-
v-b...](https://www.courtlistener.com/docket/16048273/toptal-llc-v-
beneschott/)

------
olliej
Another story of non-executives being screwed over stock - we’ve seen claw
backs, revaluation, reweighting, etc

Seriously people need to stop accepting anything other than actual, real
shares, that aren’t any kind of lesser grade/b class shares. Guaranteeing
investor payback over employee payback.

Employee’s, especially early ones, are taking more risk than the VCs and
should be compensated at a higher rate. If investor repayment is higher
priority in funding rounds/buyout employee investment should be paid back
before purely cash investors.

The end.

~~~
zopf
The reality is that you need to be able to trust the founders and board
members you work with. A corporation's board typically has the authority to
issue new shares (thus diluting existing shareholders), so even having
unrestricted common stock or even preferred stock does not guarantee that you
will always own a certain % of a company's outstanding shares.

Between all the preferred share terms, warrants, options, contingent earn-
outs, etc, there's a million ways to engineer the divvying-up of proceeds in a
sale.

Ultimately, it comes down to whether you trust your leaders to hold to the
spirit of their agreement with you.

All that said... it would be really interesting to see a corporation with
bylaws and governance/voting structured in such a way that employee ownership
and payout %s could be maintained within certain guaranteed bands. It would
severely limit that corporation's flexibility, and might lead it to have a
higher risk of failure in bad funding market environments... but it could
become a big draw for high-value employees who strongly prefer equity
certainty over cash comp and company autonomy.

~~~
AdamN
This is 100% true. You need mechanisms that validate and verify that trust
(real stock or standard options, documented legal contracts, etc..) AND you
need to have the personal trust in the board/founders in the first place.

Even with both there's risk beyond just market risk, but at least you've done
what you can to minimize it.

