Several former partners of the venture firm
Wayne, Pa.-based TL Ventures has filed its own demand for arbitration to resolve the matter.
Clawbacks are written into virtually every limited partnership agreement to ensure GPs don’t make money at the LPs’ expense. Essentially, they are agreements that management’s share of profits must be refunded to investors if a fund’s early investment gains are subsequently offset by losses.
The former partners who are suing TL Ventures include Bob Fabbio, co-founder of Austin, Texas -based companies Tivoli Systems and Dazel Corp. IBM bought Tivoli Systems for $745 million in the mid 1990s. In 1999, Hewlett-Packard acquired Dazel for $150 million. Fabio established the Austin office of TL Ventures in 1998 and left the firm in 2001, becoming CEO of Vieo, one of the firm’s portfolio companies.
Fabbio, who has been asked to return more than $2.3 million in clawbacks, is joined in his suit by former TL Ventures Managing Director Stanley Tims and former TL Ventures Principal Stephen Andriole. Andriole allegedly owes TL Ventures $253,201, according to public documents. The amount Tims allegedly owes is undisclosed.
The three are suing various management funds of the firm (TL Ventures III, TL Ventures III General Partner, TL Ventures III Offshore Partners, TL Ventures IV Management, TL Ventures IV, Technology Leaders Management Inc.) and four existing and former partners, including TL Ventures co-founder Bob Keith, longtime Managing Directors Mark Denino, Gary Anderson and Chris Moller. Moller has since joined another venture capital firm.
According to the former partners’ petition, first filed in the district court of Travis County, Texas, in December, they argue the clawback is unlawful for several reasons, including that the funds they helped manage and in which they remain GPs have not been “legally or formally” dissolved of liquidated, a condition they say would be necessary to trigger a clawback.
In the lawsuit, the trio also accuse their former colleagues of self-dealing. The lawsuit says that “funds belonging to the management partnerships” have, since their departure, been “set aside by [the defendants] for the purpose of satisfying their own personal clawback liability” and that not all partners of the management funds are being treated in a “fair and equitable” manner.
Fabbio, Sims and Andriole accuse TL Ventures of withholding documents despite repeated requests, “including the most basic of information, necessary to show how the funds at issue have been handled internally.”
Whether they have their day in court remains to be seen, however. Since the three first filed their suit, TL Ventures has filed a demand for an arbitration in Pennsylvania, through which it hopes to get its “excess profits” back from Fabbio, Sims and Andriole, in addition to interest, the costs of bringing the arbitration, and attorneys fees.
According to the firm’s filing, not only are Fabbio, Sims and Andriole “contractually obligated to pay as a condition of receiving [earlier] distributions,” but the “documents governing the General Partners, all of which were signed by Fabbio and Sims, require arbitration of ‘any dispute…in connection with or in relation to this [Partnership] Agreement.’”
When asked to comment, the former partners directed PE Week to their Austin-based attorney, Cindy Olson Bourland, who said: “For years, my clients have been asking TL Ventures for an accounting of how these supposed clawback amounts were calculated and an accounting of management fees to determine if there has been inequitable treatment of partners or self-dealing. TL Ventures has repeatedly declined to provide the requested information. My clients are entitled by law to receive this information and thus had no choice but to bring a lawsuit to force TL Ventures to provide it.”
TL Ventures, which is being represented by the law firm of Gunderson Dettmer, declined to discuss the case.
“It is TL’s policy not to comment on litigation,” wrote Pamela Strisofsky, the firm’s CFO, in a letter to PE Week.
A source unrelated to the case, but familiar with all parties, suggests the battle may well get ugly.
“I think these allegations are just the beginning,” the source says.
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