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Ask HN: Screwed out of $12.8 million. Being Extorted. No Money for attorneys.
221 points by downandout on Oct 17, 2011 | hide | past | web | favorite | 105 comments
Hi Everyone,

In 2004, I co-founded an Internet security company called Anakam. I was a programmer with some interesting ideas, and my business partner and I agreed at the time that I would receive 20%, and my partner 80% (he was financing the whole thing). We had a personal falling out in early 2005, and I left the company, always believing that my ownership was still intact. In October 2010, the company was sold for $64 million to Equifax. I found out about the sale after the fact; my partner had simply pretended that I never existed and had assumed my ownership. I am listed as the inventor on the company's first patent, which is still a key part of the company's product offerings today.

In February 2011, I sent a cease-and-desist letter to Equifax. They sent back a letter saying that they viewed my letter as an extortion attempt, and that if I did not immediately sign a settlement and and NDA that were included with their letter (without compensation), they would file a criminal complaint against me. After this, I showed my cease-and-desist letter to an attorney, who assured me that my letter was well within the law, but that their response was in fact extortion. There is a specific federal law that prohibits threatening to accuse someone of a crime unless they give you some form of consideration - in this case the outright dismissal of $12.8 million in claims. Their response came entirely out of left field, and I have not heard from them since the moment the attorney I showed the letter to told them that he believed their response was a violation of Federal extortion laws. The letter was signed by my former business partner, who was at the time still the CEO of the Anakam division of Equifax, and was, oddly enough, forwarded to me from their law firm.

I do not have the resources to pursue this matter at this time. I am told that I could have those involved in authoring and delivering the extortion letter prosecuted criminally (possibly including Equifax itself), but I have little interest in that right now.

Does anyone have any suggestions as to what I can/should do in this situation? I have come to the realization that I may never see my $12.8 million, but the extortion really added insult to injury. Any suggestions would be helpful.

You can email rr@guiyui.com if you would prefer not to post in public.

You're the bad guy in this story, and it isn't even close.

At the point you and your partner had a falling out you had put in less than a year of work for the company. The other partner had invested, I can only assume, a substantial amount of money. If at that point he too had quit the company (and the shares) would have been worth absolutely nothing. I repeat: when you quit your shares were worth nothing. You could easily walk away because it wasn't your money on the line. You left the other guy in a terrible spot where he invested a bunch of money and his (technical?) partner left.

Now, the other guy spends an additional 6 years on the business and turns it into a success and now you believe you're entitled to that even though you screwed him over 6 years ago? Even though the ONLY reason that the shares are worth something now is because your partner put the effort in! That you're entitled to the same equity you would have gotten had you stayed for all 7 years? Are you kidding me? And you're publicly accusing the ex-CEO of Anakam of screwing you out of $12.8 million? It's clearly the other way around. You're trying to screw the other guy out of his money AGAIN, based on some dodgy legal footing.

Just a passing note here without commenting on the substance of these claims.

Many founders do a "quickie LLC" on their own "just to get started" with the expectation that they will get a lawyer later to clean up the paperwork.

When they do this, the two classic mistakes they make are: (1) not imposing vesting requirements on grants made to founders; and (2) not requiring that founders assign all IP rights into the company in exchange for the grant.

In most cases, this becomes no-harm-no-foul and is simply cleaned up at a later stage. If there is an early falling out, though, you can have founders who leave the company and subsequently assert expensive legal claims even though their contributions to the venture may have been slight. In such a case, the do-it-yourself attempt to save a few dollars at the outset becomes a very expensive lesson in just how badly things can go wrong when you cut corners on such matters.

Don't know the facts here and am not commenting on OP's position, which might be entirely legitimate and which can only be evaluated by those who know the facts.

A lawyer friend once described to me (but did not advise me) that a large part of contract disputes is figuring out what the original intent was.

If that's true, is there any benefit practically speaking to having a simple e-mail that records the main points of agreement?

It's perhaps not legally ironclad, but could provide evidence of the intent of both parties.

I think there's a mental hurdle of going to the lawyer versus just exchanging a few emails.

A business contract typically tells a story about what two or more people hope to achieve by a mutual exchange of items of value in their deal. For most such contracts, a "meeting of the minds" lies at the heart of what the contract means and how it will be interpreted. If you don't have a formally executed document that itemizes the deal in total, it usually helps in documenting your intent if you have contemporaneous emails that set forth that intent.

Note a couple of points:

1. It is important that they be "contemporaneous" - after-the-fact emails that try to paint a self-serving picture do not help and can sometimes backfire.

2. It is important that they be clear. In emails, we sometimes ramble or make ill-conceived statements or simply incomplete ones, and all this can be twisted against you in any later dispute. Best advice here: be yourself and set forth the terms as you see them honestly, clearly, and in keeping with the nature of the relationship (no CYA stuff), preferably without legalese; don't document pointlessly but only as needed to add clarity to what you are hoping to achieve.

3. Watch out for "merger" clauses in any final documentation if your expressions of intent as set forth in emails are contradicted by what the final contract says. A merger clause says that the written contract sets forth the entire contract between the parties and that nothing that has previously been said or even tentatively agreed in prior exchanges between the parties is valid if it contradicts what is set forth in the final written contract. When you sign a contract that has such a clause, you will be hard put to push any contradictory interpretation that you might have previously documented in emails. The emails still matter if all they do is help interpret otherwise ambiguous expressions in the final contract but not if they contradict clear provisions of that contract. The lesson here: don't assume that, simply because you have documented something in an email, it will necessarily help you in the end.

4. Get good legal advice before signing any important contract and normally document it in a formal contract if it is at all important. If it is a smallish, then the ebb and flow and the informality of email documentation can work just fine but do be aware of the limitations of any such approach. A good lawyer will also help think through the issues and help eliminate problem areas concerning whether the contract expresses your true intent. Do not use a lawyer slavishly but use one when it matters. This is really the theme of my GP post where I essentially say be careful not to be penny-wise and pound-foolish when it comes to using legal help on things that matter.

> ... perhaps not legally ironclad, but could provide evidence of the intent of both parties

Be careful, because "just exchanging a few emails" can be legally binding. For example, in the Stevens v. Publicis SA case [1], the owner of a PR firm sold out to a French company and stayed on as CEO pursuant to an employment agreement. Things didn't go especially well after that. Eventually the French company removed the former owner as CEO, who stood to lose out on a $4MM earn-out. The French company proposed modifying the arrangement to put the former owner in a different role, so that he would still have a shot at getting his earn-out. In the course of an email exchange on that subject, the former owner responded, "... I accept your proposal with total enthusiasm and excitement ...." The former owner later sued (on grounds not made clear in the court's opinion); the court held that the email exchange constituted a binding agreement to modify the original contract.

PS I second Grellas's comments in response to JabavuAdams.

[1] 50 A.D.3d 253, 854 N.Y.S.2d 690 (2008) (affirming judgment on jury verdict in favor of French company), http://scholar.google.com/scholar_case?case=6414256789563157...

I agree that he deserves credit for building it into a real business, and he has been richly rewarded for that. However, everything - the company's name, its business model, and much of its intellectual property were my contributions. A large part of its success resulted from sales of products using my technology. The personal falling out was over a woman, and I did not leave voluntarily. This company was my brainchild and I would have continued working under the worst of circumstances if allowed.

Finally, I don't think that anything entitled them to attempt to extort me, or to use my intellectual property while in breach of contract.

> and I would have continued working under the worst of circumstances if allowed.

Well that's obviously not true...

It's far from obvious. Perhaps you missed the part where he involuntarily left the company?

What would you say if this person's technology contribution was fundamental to the success of the company and, once complete, the other partner then did away with the technical mind behind the product so as to maximize benefit for himself? You have no idea what the true and complete facts are behind this guys story. Stop running around trying to apply half-baked, two-bit Valley Web-startup rules to his situation.

I base my judgement on the information I have at my disposal. If the facts change my judgement will change accordingly. I could refuse to pass judgement until I have "the complete and true facts" (as if that's even possible). I could wisely shake my head and say "well, it's complicated", "there are always shades of gray", "people ought to be adult about these matters".

Refusal to take a side is just http://lesswrong.com/lw/yp/pretending_to_be_wise/.

Based on the post by the OP I consider the claim that he is entitled to $12.8 million ludicrous, and I stand by that.

I don't think the point of that post was "You should always take a side, no matter how little information you have".

> What would you say if this person's technology contribution was fundamental to the success of the company...?

Looking back, I wrote some code in 2004 and again in 2005. Assuming that said code was left intact(1), at no point in my existence would I pretend that a company was able to launch, become a going concern and grow to the point of multi-million dollar sale based on some code I wrote six or seven years ago.

(1 a completely insane assumption, imo)

What about the reverse situation? Someone invests money into a startup in exchange for 20% of the value. If they stop further investing does that mean the money was not fundamental to getting the company off the ground?

Equity is given before most of the expected value is provided, so it's important to have a mechanism to reclaim it if the expected value never materializes. That's why vesting is so important.

If you decided to provide less than the expected amount of money, you would receive less than the agreed amount of equity, but it's really apples and oranges.

The value expected from investors is longterm as well. Many startups take money from investors as a mechanism to get them on their board, provide mentorship and make connections. If the investor doesn't follow through on the mentorship, should he receive less equity?

I've seen early-stage investors cashed-out and escorted from the building. It's a business and regardless of how much you put in up front, as a founder, employee or investor, you need to keep producing for the company or you'll be excused from showing up any more.

> getting the company off the ground

Angels routinely invest in the early-stage with the understanding that their stake will be diluted by future rounds to which they may not be invited to, or can decline to invest further in.

If you're cahooted with an early-stage angelish investor who somehow thinks their initial financial contribution to the project ultimately lead to its success and should therefore retain their undiluted equity and equally participate in the liquidation of the company, then you have other problems you need to deal with.

How do you identify these people? Usually financially unsophisticated and like to go around telling people that they are, in fact, either an owner or founder of "their startup". Some VC's have a habit of doing that as well. It's gauche.

Maybe we are disagreeing about different things. If someone invested money for 20% of a company they would still have some percentage of ownership after dilution. If someone invested time and skill then they should also retain some diluted equity in my opinion. The OP's 12.8m seems excessive though.

> If someone invested time and skill then they should also retain some diluted equity in my opinion.

Not without a vesting schedule and certainly not at an undiluted figure representing 20% of a company six years later.

If anything, absent contracts and documentation, OP would be lucky if he could secure an early termination fee based on the one-year, pre-money valuation of the company during which he worked. My senses tell me that said amount, if awarded, would not cover the legal fees involved.

This would be akin to Pete Best asking for a full share of the Beatles' catalog.

I think it's awfully premature to go around judging who is 'the bad guy', and that it's quite possible both or neither of them have done less than stellar things. But we simply don't have more than a smattering of facts from one side.

20% of a start-up (at year 1) is worth much less than 20% of it 5 years later. If the company had their paperwork in order, the OP should have maybe 5%, due to vesting and dilution. Or the original investor should have bought him out for a few thousand, as he was walking out the door (but he didn't did he?). Imagine if you had worked on building your company for 6 years, only to have an early employee (who presumably quit in a huff) come back and demand 20% - which they were meant to actually work for, and asserted IP rights on everything they had worked on.

That said, the company is also behaving very badly, what with the extortion thing. They would be better off making a reasonable offer, and hitting themselves on the head for screwing up their ownership / IP assignment paperwork.

The extortion accusation is just legal hardball, I assume. Remember that the OP hit first with the cease and desist along with a demand for $12M. So they hit back (though perhaps overstepped what is legal themselves, I don't know the law). Certainly they don't get brownie points for niceness, but they're playing on the same field as the OP.

> If the company had their paperwork in order, the OP should have maybe 5%

Vesting usually happens over 4 years, so quitting after 1 year means 20%/4 = 5%. After accounting for dilution due to investors, other stock grants and employees grants, I doubt it can be bigger than 1-2%.

All of this assumes, of course, that there was a contract or signed, written agreement in place, with vesting as an explicitly stated term. What "usually" happens is, sadly, irrelevant unless it was stated in a contract in this case.

There are moral arguments to be made here, and there are standards and practices that can be applied for and against those moral arguments. But it all comes down to what was, or was not, signed on paper.

Founders should have written agreements in place, or else risk some very expensive lessons in due diligence.

What portion of what is given to who is likely up to a judge and lawyers to decide at this point. Unlike HN, they'll have most or all of the available facts, which is likely to aid them in coming to some sort of agreement that's fairer than 0, which doesn't seem a reasonable amount either.

I modded your comment up because it makes some important counterpoints to our usual knee-jerk "hackers good, businesspeople bad" mentality.

But let me join the chorus of people saying that we don't know enough to call him "the bad guy", even if only because he may not understand why shares usually vest in the first place (if you're a first-time founder who came up with the idea, you might reasonably believe you have an iron claim to your % of the company, even if it rarely works out that way in the real world).

By saying that he's "the bad guy" I did sort of imply that there is malicious intent on his side even though that may indeed not be the case. Perhaps he did not deliberately name the company he worked for in the OP to gain extra leverage, and perhaps he did not deliberately play the victim card and perhaps he really feels he deserves to get $12.8 million for his contributions. Perhaps.

And for what it's worth, I think he should get some compensation for his contributions and that the counteroffer of $0 is unreasonable as well, for the reasons given by other people.

I repeat: when you quit your shares were worth nothing.

First, you have no idea what they were worth. For all we know, the company could have been profitable in its first year of business. Second, you have no idea whose fault the break-up was, and are assuming the OP is at fault. Third, if passively owning shares in a company means one is not entitled to any of the capital gains thereon, the vast majority of investors are in for an unpleasant surprise.

I can't understand the angry tone of your comments. You seem determined to assign all fault to the OP, despite his observation that the firm's first patent is still a core part of the IP. I'm guessing you're against software patents or something and are discounting the net present value of that contribution to zero, so as to argue that all value derives from the operation of the firm by the OP's ex-partner.

Patent #7,676,834 was applied for in 2004, but only granted in 2010; it's conceivable that the granting of a patent was what made it worthwhile for Equifax to acquire the firm, as opposed to its book of business. I'm not a big fan of software patents, but this one looks unusually valuable as these things are currently handled.

The angry tone is because he publicly accuses Anakam and his ex-partner of screwing him out of $12.8 million, accusing them of extortion and that he's the victim and needs the internet to help him. Even though, when I look at what he wrote, that doesn't represent the situation accurately at all.

I see this as a thinly veiled attempt to get an internet lynch mob started. I think he chose the title of the HN post deliberately to evoke an emotional response, specifically one of outrage.

Had he obfuscated his story such that we wouldn't be able to identify the people involved I wouldn't have responded with an angry tone. He could even have kept the inflammatory title.

(FYI: I'm not particularly against software patents.)

if his name is on a patent, that is part of their current offerings, he is indeed owed something

Untrue. The company usually owns the patents. It just depends on whether he assigned his IP to the company when they incorporated, which he should have.

Does this individual have ownership of the company? What rights did he have according to the shareownership document? He may have a legal case no matter what you think of the ethics involved.

I agree - this descended too quickly into a discussion of what the OP "deserved" or what his shares were worth when he left. His claim is based on ownership, which should be established (or disproved) according to the law.

How do you know? If he was a legitimate partner in the original LLC/Corporation, he may have equity rights that the other owner ignored, buried, etc. You have no idea. From his post it sounds like the founders didn't have a formal setup but had a gentleman's agreement which was ignored. It is not just "OK" to ignore a gentleman's agreement.

Maybe they had something formal, maybe they didn't. Either way, there are laws governing how the "four D's" are handled if nothing is stipulated on paper. The four D's are death, disability, divorce (ie partners decide to separate, which is what happened here), and departing (amicable separate through pre-arranged buyout/exit terms).

In any case, let this be a lesson to everyone else to have these situations pre-contemplated and agreed to in writing :)

I think that asking for $12.8 million is a lot. However, the person is co-inventor of a patent on which business was based on, so he does have some legal ground. Or at least common sense.

Totally aside from what "feels" and "seems" good or bad, the only relevant question is whether OP kept their shares or not when they left... this should be the only point they have to prove, no? And what about the patent? Was that bought or licensed from them? I think we are lacking the important details, namely what happened when they left the company and what they signed then and before.

So it comes down to what papers were signed when by who and do you still have copies? If all you have as proof is "word of mouth" without any witnesses then, well, you might be fighting a lost cause.

That's what vesting is for. He's clearly not entitled to 20% of the sale price, but these people are behaving like contemptible assholes and he should get something.

He should figure out what he'd have if there were a 4-year vesting schedule in place and settle for that. He would get 1/4 of his partner's take if he had stayed for the entire vesting period, so if he was there for exactly 1 year, he should get 1/16 of whatever his partner got.

Here's the reality he faces, though. He's up against sleazebags who are going to try to make sure he gets $0.00 and he's going to have to fight to get anything. He needs a good lawyer. We can't help him.

Step 1: Get your paperwork in order. Find the papers that were signed, certificates given, emails sent. Gather ALL your evidence in one place/folder. MAKE A PHOTOCOPY OF EVERYTHING. Keep this separate just in case things go missing.

Step 2: Build your story. Get it clear in your own mind what happened and how you got screwed.

Step 3: Talk to the best attorney(s) you can find. Talk fast, listen well.

Step 4: Let them do what they do.

If your case is solid, most attorneys will take it on contingency, but at 12.8 mil this isn't a small town matter. You're looking at semi-pro minimum. Consider it an investment.

Step 1a: DON'T talk about the specifics of the case in public. You're giving opposing counsel a free head start in building their case against your arguments.

Semi-pro? How much money would it take for you to require a full pro?

Try $800/hour. Or maybe even higher. Grade A lawyers are in that realm, I know people who charge that much, and have founder friends who have lawyers that charge that much.

edit: which is why contingency is so important here.

I meant how much money you would call in pro lawyers to get, not how much you would pay them.

See now I misread you. :)

You clearly aren't trying to be anonymous, since you named the company and your patent is easy to find. Congratulations, I guess, for being the first to patent the idea of authenticating a web app based on a password plus a cookie from a prior session, and requiring additional authentication if the cookie isn't there. Hard to imagine that that wasn't obvious in 2004, but maybe it just seems that way in retrospect.

I believe the bank where I have my savings account is using this IP for their login system ... I don't know whether Equifax provides it or not. I guess the other question is whether this can be invalidated by prior art. It also seems obvious and common to me but I can't say whether it was in 2004 either.

I went through a similar situation myself a long time ago, albeit for much less money.

1. Put your story together, with paperwork and references. 2. Call some attorneys about taking the case on contingency. You have to "sell" them on the value of your case. Think of it like pitching an investor, because frankly that's what you're doing. 2a. Don't pay a retainer. I blew a lot of money with this route before focusing on a contingency arrangement. 2b. I got myself a free Westlaw trial account and searched for cases similar to mine, figuring I could find someone for whom my case wouldn't be risky for them. Also I looked for small firms so that I could talk directly to the decision maker about taking cases on contingency.

Result? 0 money invested, reasonable settlement, and closure. It took about a year. Yours will take longer likely.

You need to stop posting about this on the internet and get some competent advice.

If you actually have $12.8M + potential damages at stake, saying "I cannot afford a lawyer" is ridiculous.

Yup. Posting on the internet can hurt your case. Although this is interesting, I'd honestly recommend discontinuing the thread and deleting the post.

A lawyer that thinks you have a good case will take this up for a cut of the settlement no problem. If you can't find a lawyer that thinks you have a good case... it probably isn't worth suing.

Equifax is a huge corporation which is both good and bad. Bad because they've got limitless resources, good because they are a publicly traded corporation which makes them sensitive to valid lawsuits. Their business is also based on validating trustworthiness, which I think would also make them vulnerable to allegations of criminality and abuse of process. This is not a job for your typical small town lawyer. I think you need to do some research and find a big-ass New York-based law firm that knows how to find their short hairs and pull sharply.

They're also likely to have other large public corporations as clients using your technology ... an injunction against using your technology until the case is settled could prove extremely embarrassing and costly to them.

Equifax couldn't care less what the public thinks about them. They are frequently featured on sites like ripoffreport.com They target computer illiterates by offering them a free credit report. Not long after they get the free report, these people notice that they are being charged monthly fees for services that they didn't even know they signed up for. While not technically illegal, it is highly unethical and I wouldn't be surprised if a significant portion of their income came from scamming people who don't know better.

It can be argued that the people getting scammed are partly to blame because they didn't read the fine print. I agree to an extent but I also believe that if a business wants to succeed, they should do so on honest terms.

I practice business litigation in Texas and California. It sounds like you have a great case. See if you can find an attorney who will take this on a contingency basis.

What state are you in? I can forward this to a California attorney I know who does business litigation on a contingency basis if you are in California, since I am living in Texas at the moment.

I am in Nevada, but any litigation would likely take place in California. The company was initially based in Nevada, but was moved to San Diego (the Southern District of California for a federal matter). After the acquisition I believe their headquarters moved to Virginia, but I know they still have an office in San Diego.

Just listened to the latest Digital Age podcast and they discuss litigation funding, which sounds like exactly what you need:


They answer some interesting questions about the process and there are obviously some advantages over a contingency arrangement (e.g. counsel gets compensation and thereby incentive to prosecute your case with all of the necessary resources). Here is the description of this program:

  The cost of litigation can be catastrophic. Many litigants drop
  good cases, or lose their businesses entirely, because they
  run out of money. Recently, third parties have appeared to
  advance legal costs, in exchange for a piece of the recovery.
  But is this new structure illegal? Litigation funder Selvyn
  Seidel tells Jim Zirin how funding has transformed the global

Great. I will forward your post.

A number of sizable and well-respected law firms will take your case on contingency if they believe that it is a good enough case and you can win. Upside is that you can get good lawyers able to help you, and if you lose, you won't be out the lawyer's fees. Downside is that if you win, you will pay a substantial percentage (30-50%) in fees, largely due to the increased risk that the firm takes on.

Also, whoever said to sue for IP infringement may be worth listening to. 12.5M for a patent judgment is low.

I suspect you are overestimating what you are entitled to.

20% of the founding equity rarely turns into 20% of the final sale price of the company. Normal, healthy subsequent investment could easily dilute the founding shares 2:1 or 3:1. If the company goes through especially bad times -- a near bankruptcy followed by a last-minute bailout by investors, not unheard of in the last few years -- the founding shares could easily be diluted 10:1.

Add in a modest management carve-out from the sale, and your 20% amounts to 2-5% of 90% of $64 million, or $1.2-$2.9 million.

You are probably correct that there has been some dilution. My co-founder already had very deep pockets before we started the company, and I believe that he remained the primary investor throughout (though I am aware of 1 small round participated in by a venture firm). He would have made it a priority to dilute me out of existence.

They have refused to provide any information with regard to this at all.

There are so many ways to screw over a non-employee, minority common shareholder, you may well have no case here.

For example, if the company hit a rough patch, it might have been recapitalized, with all current shareholders wiped out. Since your partner had 80% of the shares, and plenty of cash, he could have easily pulled this off.

Depending on what state you're in, you may no longer have any right to seek redress. If your partner knows what he's doing (or has a lawyer who does), the best you're going to get is a small amount of cash to go away. And if you guys are on bad terms, you may not even get that.

You can only dilute someone who owns shares.

I haven't seen any evidence here that he even owns any shares.

Still a lot of money, of course.

The first thing I would do is remove all references here to the names of the companies involved.

You can still get the benefit of Hacker News advice while keeping the parties anonymous... but by naming everyone, you open up several cans of worms (they could sue you for defamation, they could learn how you're thinking about this and what your resources are, this could get posted to TechCrunch in a way that hurts your chances of a settlement, etc.).

1) Do you have documentation regarding the 20% ?

2) Sounds like you should seek an attorney who would be willing to take a cut if they win the case.

I do have documentation regarding the 20%. The one attorney I have spoken to says, for reasons I still don't entirely understand, that I have a better shot at trying to sue them for using my intellectual property without permission, since it is quite clear that I wasn't compensated as agreed for the license to use the technology.

They also say that a civil extortion claim is the low-hanging fruit in this situation, but this particular attorney was unwilling to take it on contingency.

The one attorney I have spoken to says, for reasons I still don't entirely understand, that I have a better shot at trying to sue them for using my intellectual property without permission

If I had to guess from your wording and this response, the "company" wasn't incorporated while you were involved with it? If it were, you'd have some sort of share certificate and the sale of the company may have been fraudulent. If you're a shareholder, someone else can't easily just "assume [your] ownership".

I'm guessing you never got an official 20% share of the corporation that was eventually sold, so your attorney may be thinking your beef is with the guy who "stole" your share and that could be a more complicated/less lucrative case.

Well, there were several corporate machinations. Initially, the company was an LLC, and I was given a 20% interest in it in writing. At some point after I left, during one of the financing rounds, it became a corporation. The corporation was sold.

> At some point after I left, during one of the financing rounds, it became a corporation. The corporation was sold.

At what happened to your shares at that point?

If I'm reading between the lines of your lawyer, your shares were wiped out at the time of sale? I've heard of this happening often (dilution of the common happens frequently before an IPO, for example. You can see it in the S-1s.)

As someone who is not a lawyer, I feel like investigating what happened to that original company is the best angle to work.

Your legal rights stem from the LLC; whatever you are entitled to will depend on the exact fate of that company.

Sounds like they haven't really communicated anything to him about what happened after he left, which means that that would be the place where HN leaves off and a lawyer takes over.

Sounds like the transition to the corp is the root of the problem. Realistically there are very few restrictions on how to do this and it's SOP for non-contributing minority owners to get seriously diluted.

Harsh but fair: this is as it should be. Ownership based on work/effort/invention rather than invested capital is contingent on that work continuing for a LONG period. Generally these arrangements have a cliff also - so if you leave in less than 12 months your ownership is drumrole nothing. This isn't true only with startups - look at inventors in other businesses... in exchange for an idea and sample they get 1% of the royalties, it's small because sales & marketing & production are more important than the invention

It's entirely possible you have a case, but your description sounds like the prototypical ex-founder nightmare. Based on pattern-matching, you may get some cash, but nowhere near what you're saying you're entitled to have.

There's a risk though, if you have any entrepreneurial aspirations you'll burn all your future potential with the lawsuit. VCs and potential co-founders will be very wary of dealing with someone who has taken this route.

Well, for that much money - even a shot at it - you ought to be out there making your case to attorneys who might take the case on contingency. Put together a nice presentation of 'the facts' and 'the evidence', and get out there.

Inferring from very little information you've provided this sounds as if the Corporation did a licensing deal with the LLC to acquire the technology. This would be one way for your former partner to cut out out of any equity up-side for the going-forward business. Scary stuff. You need a lawyer.

I'd say shop around for another lawyer - your's sounds bunk.

What type of documentation?

I'm sure you can find a lawyer who can take the case on contingency, 10-20% for the lawyer would make a nice sum...

Often it is more like 35% or 40%. And if there is an appeal they may go to 50%.

Talk to as many attorneys as you can until you find a good one who is willing to help.

Or treat this as an investment: invest $100K for a $10M return.

My personal recommendation: talk to great lawyers, they are more expensive on a per-hour basis, but when they tell opposing counsel what they think of the case, the other side usually listens. Been there, done that :-(

Elsewhere in this thread you say, "the one attorney I have spoken to".

You need to speak to many attorneys. You essentially get a free 30-60 minute consultation with each attorney just by shopping around. You'll get more value out of it if you have your documentation and written timeline of events ready before the discussion. But also, you might need to talk to a few before you even realize what are the important documents and events to summarize.

Attorneys are wildly different in their competence and style and willingness to work on contingency. Each may prefer a completely different approach to the case. But almost any of them will be better able to craft a 'cease and desist', or other demand letter, than what you did yourself (and may have prompted the counter-threat via clumsy amateur language).

If you have a real case, and the stakes are as you describe, there are a lot of better places you can get legal advice than a discussion thread. Don't DIY legal notices against a giant corporation, don't improvise, don't litigate in public, don't ask amateurs for help – shop around with professionals. You could talk to dozens to lawyers, learn something new from each one, for no money out-of-pocket.

Any company being sold to another company requires due diligence, especially on the legal side of matters. Equifax may have done their part in ensuring that the business they are acquiring is all good and the ownership / stakes in the company are all relevant (literally means as well that they ensured no other claimants would suddenly come up after the acquisition).

I believe the focus of your case (should it materialize) would be to your previous business partner. If you say and rightfully claim that there's a documented agreement (filed during the company incorporation) that you own 20% of the company, then there's a pretty good chance you may be able to get what is rightfully yours. Take note that you should be clear whether that 20-80 agreement you made before pertains to the ownership of the company, and not on particular income with which the company would be generating.

Good luck on your case and may you get what is rightfully and legally yours, so to speak.

This is quite straightforward. You either own stock in the company or you don't.

You own stock in the company if you received shares when you founded it and/or if you received options, vested them, then exercised the shares upon leaving the company.

If you own shares, you produce the certificates, and the acquirer will buy them from you.

If you don't, you don't.

No attorney can help you if you claim to own shares in a company without actually owning any shares.

The discussion about what you "deserve" and "don't deserve" is irrelevant. You either own the shares or you do not own the shares.

I don't understand why you thought you could quit the whole company and still retain 100% of your assets, then come back 7 whole years later and complain that you were no longer an owner.

Here's a thought: Let it go. If your inspiration is the innovation at the heart of useful, life-changing technology, count yourself fortunate to have had such a meaningful impact.

Or dig in and fight like hell.

Roll up your sleeves and head to the nearest university's law library, bring some reading glasses and a tablet, dig into the germaine presiding legal code, and craft your offensive with the same fire in your belly that Erin Brokovich did when she went after the gas company.

As a matter of fact, if it's true and you find that your legal footing is indeed sound, it's a gold mine of content. Blog, book, movie. Think about it: Equifax. You couldn't pick a better black hat for a David v Goliath/ Good v Evil story. Really. The potential for intrigue and creative spin is endless. Creative non-fiction, as a genre, is one of the most lucrative in the history of story telling, publishing, theater, and film. And this story is one with an increasingly transcendent resonance at the dawn of the so-called 'contract/freelance/entrepreneur economy'. So many of us have been burned in similar ways, and it happens with such frequency, that even if a tenth of us similarly afflicted folks opted in, bought the book, and downloaded the movie, it'd likely dwarf the 13 million-dollar screwing you got.

If you go down that road, I'd ping Brokovich's consulting firm. Polish the canonball a bit, but really, get someone of that stature with that sort of direct 'man v. machine/in the belly of the beast' expertise. It could be bigger than you imagine.


Either way, thanks for the hack story. It took guts to share it, knowing that you'd likely get flamed to ashes with such a simple cheesecloth tale. Please let us know what you end up doing.

Good luck with that.

Dude, if you really feel you have a case then you can find a lawyer who will take it up for you and will only take payment if they win the lawsuit, not having money for a lawyer isn't a legitimate claim unless you really have no valid case. Given that, you would probably need to pay the lawyer at least 40% of whatever you win but thats better than nothing, right?

You MUST find a good attorney with relevant experience.

If your case is solid you will come to an arrangement on deffered payment of fees.

You participate in a company by owning shares, or owning a right to buy shares (for example, in an option scheme). How many shares did you own when you left? How many shares did Anakam have when they were sold to Equifax? If you own the shares you must have paperwork for it, back from the year 2004 or so; if so, what does that say? Was there a vesting period and if there was, what was it like?

Find a lawyer that can work for part of the possible winnings instead of a fee. If you have the paperwork that proves you owned part of Anakam after when you left it then, with competent lawyers, it should be just a matter of computing your share of the company's final form before it was sold to determine how much they owe you. Prepare to lose some percentage of the total to make negotiations easier and shorter, and subtract your lawyers portion off it, too.

between 2005 and 2010 what was your relationship to anakam? did you receive any benefit for your 20% claim, why do you believe you are 20% owner, and why haven't you made any claims to any money earned by anakam before

and even more importantly how did you leave, how did you settle when you left?

there is a lot of missing details here

Was there any type of vesting agreement in place?

If your name is on one of their patents I'm surprised that was overlooked during due diligence when the company was being acquired.

But it definitely seems like you have a strong case based on what you have described.

It doesn't matter whose name is on the patents if the company owns the patents.

[I am not a lawyer, you should always consult a trained legal professional when working with legal matters.]

Don't let corporations bully you. Find lawyers who are willing to work on the case and pursue it. I would hope money isn't your only motivation, but if they have committed a crime, at the very least your local District Attorney or the FBI should review and begin pursuing any criminal charges.

Assuming any criminal complaints "stick" it will make a civil suit much easier on you down the road.

Get a NYC lawyer that agrees to take the case at his own risk.

Pitch them with your story, if they find it solid (you can prove you claim) then you have a case and they should be interested.

Good luck

Whatever your feelings are, if you don't have the evidence to support your claim, you should just forget about it.

Evidence is the key to any case not the lawyers. You can't stand-up in court and make claims if you can't subtantiate it. That's just a fact of court cases.

Best advice : Don't become the next Winklevoss, you won't make friends and that notoriety is not the sort I'd wish on any entrepreneur.

Channel your anger : get on an build the next big thing instead.

Find a lawyer that will take it on contingency.

Also, talk to 'grellas' here, he's one of the nicest legal eagles I've ever seen.

Not sure if it'll add more credibility to the claim, but interestingly the wikipedia page for Anakam doesn't talk about Founders. And the company's official leadership page is empty!


Move on with your life. You gave up on this years ago. Trying to extract a 20% stake for some flailing around in the early years is ridiculous. You were happy to let others do the hard work building a company, now you want to cash in.

Find a competent attorney who can work mainly on contingency and just sort the mess out. All the extortion junk sounds like a red herring. Prepare to be delighted by something well less than 20%.

This problem is pretty simple in my opinion.

You say you own 20% right? Do you have this down on paper somewhere signed by all parties?

If no, you get nothing. If you do, then you have a case.


The best thing HN can do is to bury or delete this thread immediately. Any money he makes will not be enough to pay for defamation costs.

As most others here have said, find a lawyer who will do this on contingency.

Google ip attorney contingency and go from there.

I am in a similar situation, but probably around 1/10 of the amount.

As you already know, it is fairly easy to send a letter.

I am surprised they did not also accuse you of libel. That is my favorite.

Do you happen to know the federal law regarding the accusation of crime unless given consideration. Is it simply extortion or is there some other statute?

Best of luck, you have justice on your side!

Try to get some lump sum cash AND a yearly/quarterly/monthly licensing fee out of this.

There was no vesting schedule. It was an ownership grant.

A healthy dose of skepticism won't hurt here. This sounds exactly like 419 scam if you choose to fund for his "lawyers".

I honestly wasn't asking anyone to fund anything. I am just seeking advice as to what I should do. I could have them prosecuted free of charge, but I'm not sure that will advance my cause.

At the very least, a successful criminal prosecution would make you feel better. And it would likely advance your cause...I'm not sure if an extortion conviction would be admissible in a civil trial for something like this, but even if it weren't, the fact that someone was convicted of criminal extortion would make it far more likely you'd get a good attorney to work on contingency for the civil complaint. Even if you only recover $1m, 33% of that is a decent payday for a lot of lawyers.

Can you not follow civil and criminal routes? Find an attorney to take the civil cases (and file for patent infringement, the ownership issue & the extortion), and at the same time report them for extortion.

Assuming everything is well timed you could have 4 guns blazing at once, which will certainly help them notice you. :)

Well, it might. If you don't have the resources, could you in fact pursue the extortion charge, get the judgement, and then come back around and say "hey, now that you've been found guilty, let's talk about the real issue"?

They may be willing to negotiate at that point. Of course, not a lawyer here.

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