You’d never expect the Seattle startup community to be scandal plagued, yet it’s just been hit with its third embarrassment in just four months.
First, executives at the CRM company Entellium were found in October to have cooked their books to attract venture capital (the company has since shut down). In December, Bellevue-based Count Me In, whose online registration tools are used by thousands of nonprofits and youth athletic programs, admitted that it owes millions of dollars to more than 200 sports programs across the country. Now, Techflash is reporting that the chief executive of retail kiosk startup MOD Systems, which raised $35 million in funding from NCR and Toshiba last summer, is being accused of “massive fraud,” by one of its own investors.
In a lawsuit filed last week, Seattle angel investor Robert Arnold makes a number of serious claims against MOD CEO Mark Phillips, including that MOD pushed through the transaction with Toshiba and NCR in part because it gave Phillips the right of first refusal to buy preferred shares.
The suit also accuses Phillips of blatant fraud, saying he established a $15,000 to $25,000 per month consulting agreement with a firm called Meteor Consulting, payments to which went to a bank account in the Netherlands controlled by Phillips.
Finally, the suit claims that Phillips has otherwise been using MOD corporate funds for his personal benefit, including for the “purchase and/or lease of his personal vehicle, the purchase of electronics for his personal residence and as gifts, and extensive non-business related travel and entertainment.”
In addition to Phillips, the suit names MOD’s vice chairman, Anthony Bay, and its COO, Kenneth Gordon, as defendants.
MOD Systems has responded to the suit, saying that “an independent committee of the MOD Systems board of directors is looking into the allegations Mr. Arnold is asserting as a shareholder on behalf of the company” and that “the company believes that the claims Mr. Arnold is asserting against MOD Systems itself are unfounded and without merit. ”
Guess we’ll see soon enough. For much more on the story, click here.