There is “strong evidence” that the former chief executive of Ve Interactive acted with “unacceptably low standards of commercial morality” when he ran the once highly valued adtech startup, according to a High Court judge in London.
The comments were made in a judgment on Friday against David Brown (pictured), and his business partner Martin King, which placed a worldwide freeze on their assets and ruled that they each owed £3.5m to Bank and Clients, a creditor of the former £1.5bn tech unicorn.
Until its downfall this year, Ve Interactive was one of just a handful of British startups valued at over $1bn. It was co-founded in 2009 by Mr Brown, who brought on Mr King as his director of investor relations in 2010. The pair were forced out of the business in March this year by a group of shareholders, who bought it out of a pre-pack administration the following month.
Bank and Clients sued Mr Brown and Mr King after the administration to recover a £2m loan the private bank extended to Ve Interactive in October 2016, which the executives had secured with personal guarantees. The loan came with an additional £1m “work fee”.
According to the judgment, the pair had been reluctant to take money from an existing investor of Ve Interactive, who offered to buy shares at a lower price than its valuation at the time. The investor was “part of the group that would love a down round to steal some stock,” according to an email from Mr Brown cited in the judgment.
Judge Lionel Persey QC ruled that Mr King and Mr Brown gave the bank “misleading information” about the value of their assets, adding they had “what can most charitably be described as a wholly cavalier attitude” to the disclosures. He said that there was “considerable force” in Bank and Clients’ argument that Mr King and Mr Brown “were prepared to say whatever was necessary in order to persuade the Bank to lend to Ve”.
He dismissed Mr King and Mr Brown’s claim that the bank had given them assurances that their personal guarantees would be a last resort, used simply as a back up, and that the loan would be secured by a charge over Ve Interactive itself.
The judge noted that the alleged assurances were only first brought up after Bank and Clients attempted to enforce the personal guarantees, and added that the pair had “made demonstrably inaccurate statements” to the court in regards to their knowledge of the “work fee” and the extension of the loan agreed as part of their departure from Ve.
“Although Ve had a high share value it was cash-starved, it was not profitable, and it was unable to defray its ordinary operating expenses,” the judge wrote. “It is inherently implausible against this background that the Bank would have made the alleged representation and have conveyed the impression that the Personal Guarantees were simply required as back-up in order to give comfort to the Bank’s credit committee.”
The judge said there was a risk the defendants would “dissipate their assets” to avoid the judgment, referencing that the pair had used Ve’s accounts “for their own personal purposes”.
He said that two days after Bank and Clients transferred the £2m loan to Ve Interactive’s NatWest account, just £190.55 remained. While some of the withdrawals were payroll related or to other Ve accounts, “substantial amounts […] were disbursed to the Defendant’s themselves or to their own private companies,” he wrote in the judgment.
Last month, Mr King was made bankrupt. Mr Brown has also applied for bankruptcy. The judge ruled that any assets caught by the freezing order would be for the benefit of all of their creditors.
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