Hyperloop One — one of two startups trying to make Elon Musk’s dream of high-speed transportation a reality — is being sued by its recently ousted co-founder and three other current and former employees. The company, they say, was riven by mismanagement and nepotism, creating a toxic workplace culture.
Brogan BamBrogan, the co-founder and former chief technology officer, has filed a suit against the company as well as against his co-founder Shervin Pishevar, CEO Rob Lloyd, former chief legal officer Afshin Pishevar (and Shervin’s brother) and investor Joe Lonsdale.
BamBrogan alleges these executives breached their fiduciary duty by "placing their own self-interests and other competing interests above those of Hyperloop One." He is suing the company for wrongful termination, breach of contract, defamation, intentional infliction of emotional distress and assault.
Hyperloop One is expected to file a counter-claim in the coming weeks, according to sources familiar with the company.
BamBrogan filed the suit more than a month after he and 10 other employees wrote a letter that complained their work was "severely undervalued" and that Shervin Pishevar had "outsized control" over a company that he did not "fully understand." The letter was addressed to Shervin Pishevar, Lloyd and Lonsdale. According to the suit, Shervin Pishevar "granted himself 90 percent of Hyperloop One’s common stock" and only gave BamBrogan 6 percent.
Though sources close to the company declined to specify what the break down of the common stock is, they said Pishevar did not own 90 percent of it.
Among the employees who signed the letter was Josh Giegel, then senior vice president of engineering, who Recode first reported has assumed all of BamBrogan’s responsibilities and been named co-founder in his stead as of early this month.
But according to the suit, Giegel attempted to resign from his position after receiving a response to the letter which said the company wouldn’t be making any changes.
The suit alleged the defendants turned the company into "a marketing-driven exercise, instead of [an] engineering-driven enterprise" and "abused their control of the company." Specifically, Brogan alleged that Shervin Pishevar and Lonsdale, though they were largely "uninvolved in day-to-day matters," practiced nepotism and "wasted the company’s previous cash."
Defendant Shervin Pishevar, who was generally uninvolved in day-to-day matters, began dating the company’s PR vendor, and increased her salary from $15,000 to $40,000 a month, more than any employee in the company. When their subsequent wedding engagement fell through, he finally heeded suggestions that her work was worth little, and terminated the arrangement. Similarly, Defendant Joseph Lonsdale insisted that the company hire his little brother’s two-person outfit, with no notable experience with companies building hardware and engaged in infrastructure development, and few independent contacts with international and top-tier investor funds, as the company’s exclusive investment bank, when far better partners were available. Meanwhile, Shervin installed his brother, a personal injury and criminal defense attorney with his own small firm in Rockville, Maryland, as Hyperloop One’s General Counsel, granting him salary and stock options far greater than even the most talented engineers received.
Moreover, BamBrogan alleged Shervin Pishevar pressured Hyperloop One investors to invest in Sherpa Capital, the venture capital fund headed up by Pishevar, in order to invest in the company. Sources close to the company deny this claim and said it was categorically untrue and that Pishevar is perfectly capable of raising money without strong-arming people into it.
The letter, according to the suit, was an attempt by BamBrogan and the other employees to alleviate and solve the issues at hand. It was sent on May 26; two weeks later, BamBrogan was scheduled to make a trip to Russia to attend meetings set up by two of the company’s investors. BamBrogan opted to stay in California to address the company’s issues and called the investors to let them know he would not be attending.
The investors, according to the suit, were not aware of the internal strife at the company or the letter until BamBrogan informed them, and they questioned Shervin Pishevar, who still went on the trip to Russia, at a dinner on June 14.
Pishevar allegedly became upset that BamBrogan told investors about the company’s issues. Later that night, Afshin Pishevar, the lawyer and Shervin’s brother, was seen by the security camera placing a noose on BamBrogan’s chair.
Sources familiar with the company confirm that Afshin Pishevar placed the rope on the desk but they said that it was not a noose, but a lasso. The company still deemed the prank a fireable offense because Afshin and BamBrogan were not on good terms and in that context the lasso could be interpreted as a noose.
On June 15, BamBrogan found the noose on his desk and the 11 employees who signed the letter were later gathered in a conference room, according to the suit. They were told that, in response to their letter, "no core changes would be made and three heads would roll."
David Pendergast, a plaintiff in the suit and the assistant general counsel, and William Mulholland, another plaintiff and the vice president of finance, were told they would be fired. BamBrogan, on the other hand, would be "demoted and forced to take a leave of absence."
If the group of eleven accepted the proposal, then Defendants promised not to "pursue them to the ends of the earth," threatening economic and legal warfare by millionaires with extensive networks. CEO Rob Lloyd addressed the employees who signed the letter gathered in a conference room, and laid out a series of threats: If anyone who signed the letter was found to have engaged in any misconduct, all eleven would be held accountable; if anyone talked to investors about what was happening in the company, Hyperloop One would "come after" them; if they did not toe the line, this would be the "worst day" of their lives; and they would bleed the employees dry with frivolous lawsuits.
Some of the employees have stayed at the company. Most of the engineers who signed the letter, with the exception of one, have returned to the company, sources said. Brogan immediately resigned. According to the suit, Lloyd told the company that Giegel had joined the board of directors five days before that even while Giegel was sending a resignation email. The suit reads:
Indeed, the public website of the company still shows Plaintiffs BamBrogan and Mulholland as team members. All of this has been an effort to turn the remaining team against those who stood up for them, and consequently are no longer at the company and unable to shed light on the truth.
Following BamBrogan’s resignation, BamBrogan alleged Lonsdale sent an email to the board and the engineering team and called him "unstable" and said he had "gone haywire."
The email accused BamBrogan of "attempt[ing] to sabotage deals," and closed with blunt threats: "Should you continue to do anything at all against the companies [sic] interests you will be held fully liable for all of your illegal actions to date." Similarly, Defendants described Pendergast to employees and Board members as having engaged in unethical conduct for which he could be disbarred as an attorney.
As the company will have it, the suit is "unfortunate" and "delusional" and came after BamBrogan and the other plaintiffs attempted to stage a coup. Here's a statement from the company:
"They knew that the company was aware of their actions, and today's lawsuit is their preemptive strike. The claims are pure nonsense and will be met with a swift and potent legal response. Frivolous lawsuits like this one have become all too common against start-ups that achieve breakthrough success. The lawsuit filed today by these disgruntled ex-employees is almost a cliche. It is also a measure of Hyperloop's success. The company continues to recruit top talent, secure significant funding from global investors and accelerate toward its technology milestones. Hyperloop is on track, its board and team are united and today's bogus lawsuit will have no impact on its goal of becoming the first company to bring the Hyperloop to the world."
As part of the suit, BamBrogan and the three other plaintiffs (Pendergast, Mulholland and Knut Sauer) are asking for:
- A preliminary and permanent injunction against the defendants from publishing any material that mentions or refers to plaintiffs by name
- A public apology from defendants to all employees and the board members
- "Disgorgement" or a return of "all direct and indirect benefits obtained by defendants"
- Reinstatement at the company
- Punitive damages and more.
Update: This story was updated to include the company's statement as well as new information from sources familiar with the company.
Here’s the full text of the letter as it is included in the suit:
We regret that we find ourselves in this situation, but we feel that our past repeated efforts at dialogue with you have failed. Our purpose and goal is to achieve two things: engineering control of the company and equitable distribution of the benefits of Hyperloop to the team that is working every day. We want to be clear that we have made numerous attempts to address matters that have caused us concern through discussion.
As you know, Hyperloop One has made amazing progress over the last two years and stands on the precipice of commercializing this leading edge technology to help solve some of the world's mobility problems as well as bring great value & opportunity to everyone it touches. We believe this will be the whole world. This remarkable progress has been achieved by an amazing team acting on a truly great vision. The entire team’s speed, quality of work, and dedication has led to rapid growth in people, partnerships, engineering product, and worldwide recognition.
From the very beginning, the company culture built by our engineering leaders has attracted the brightest minds to build a singular company to deliver on the promise of Hyperloop. But there is a problem: this stellar company and its team feel that our work is severely undervalued and that our principles are not matched by certain members of the Board. Primarily, we feel that a significant problem exists in the disparity between the outsized control and equity owned by Shervin Pishevar and the limited collective control and ownership by the team.
Also, we don't believe that venture capitalists should have voting control of a company which is engaged in the development of technology and deployment of infrastructure that they do not fully understand.
As it stands, the people who are inventing this technology, building it, and interacting with customers, technical partners, corporate partners, and financiers are not the ones who stand to gain the appropriate value from it's [sic] success. In addition, there have been multiple occurances [sic] of misuse of company resources and corporate waste by both Shervin and Joe. We have lost faith in Hyperloop One’s governance structure. These views are held widely across the company. The people who are aware of this letter and support it are:
-- Brogan BamBrogan -- Josh Giegel -- Nima Bahrami -- Brian Gaumer -- TJ Ronacher -- George O'Neal -- Jim Coutre -- William Mullholland -- Erin Kearns
We have chosen to keep this list short to provide an opportunity for a discrete [sic] resolution. Please note that this list includes the technical founders, all of the engineering leadership, as well as the heads of Finance, Operations, Business Development and Legal. We are fully confident that the entire engineering team and all the critical members of the other departments would join if asked. Hyperloop One should be an engineering led company with a team of people who are working every day in it's [sic] best interest.
We believe that this company's leadership and ownership structure should reflect that. We acknowledge and deeply appreciate the contributions of Shervin Pishevar and Joe Lonsdale, but the disproportionate influence that the current ownership structure provides to them, especially in light of how they have used that influence, represents a threat to the success of this great company. We feel compelled to act in an effort to protect the best interests of the team, the company and the shareholders.
This article originally appeared on Recode.net.