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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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The Hyperloop One Lawsuit: A View From Within

Hyperloop one

After my commentary about the explosive Hyperloop One accusations by Brogan Bambrogan recently, company representatives reached out to tell their side of the story. Hyperloop One is countersuing Bambrogan alleging serious improprieties by the former employee of the firm. According to Orin Snyder, the attorney for Hyperloop One:

“Today’s lawsuit (against Bambrogan) demonstrates that these four defendants staged a failed coup to try to take over Hyperloop One and, failing that, conspired to steal our intellectual property and start their own company. They engaged in gross misconduct in pursuit of their illegal plan. They will now be held fully accountable in a court of law. Today’s filing also makes clear that the complaint filed last week was an attempt to divert attention, through lies and half-truths, from the erratic and insurrectionist behavior of these four individuals. Hyperloop One’s board and management is unified in standing up to this illicit attack on the company, and today the company is stronger than ever in its mission to bring the Hyperloop to the world.”

According to the lawsuit claim filing, Hyperloop One claims that Bambrogan worked with three other former employees – David Pendergast, William Mulholland, and Knut Sauer – to try to take over the company. Each of the employees was purportedly on notice for poor performance, and the tried to raid Hyperloop One for talent to work at a new venture after they failed to take over the existing company.

The second accusation about raiding Hyperloop One for talent makes much more sense than the first. Unlike a third world country where force is an option for a coup, it’s unclear exactly how four employees (out of roughly 160) could have any effective mechanism to affect a coup. Corporate decisions are made through representatives delegated by parties who hold a controlling stake in a firm. Related: Oil Soars 6 % As Andy Hall Warns Of A “Violent Reversal”

While coups are frequent on Wall Street, they usually come about as a result of disaffected shareholders demanding management changes. Unless Bambrogan and his three affiliates had the backing of investors with a very substantial ownership stake, it’s unclear how they could ever have reasonably expected to take control over the firm. Bambrogan did reportedly contact some Russian investors with his concerns over firm behavior, but it is unclear if the investors ever gave him serious consideration.

Bambrogan & Co.’s attempt to start a rival Hyperloop firm is much more straight forward and typical of Silicon Valley. Employees leave high profile firms all the time to start rival companies, so it’s quite plausible that Bambrogan may have had a similar plan. Related: Six Weeks In A Row – Rising Rig Count Pushes Oil Down

Only time will tell how the lawsuit ultimately turns out, but one unfortunate fact is clear at this stage – the lawsuit is almost certain to be a major distraction for the firm going forward. Research studies I have worked on in the past have found significantly lower equity valuation realizations for firms with legal issues and poor governance/risk management procedures. This will likely hurt Hyperloop One’s ability to raise capital in the future.

Moreover, the firm is also going to be forced to have executives spend time on the case through depositions, some discussion of legal strategy, etc. For a tech start-up trying to get an audacious, exciting, and challenging new product off the ground, a lawsuit at this stage is the last thing the company needs.

It is also unclear why Bambrogan is choosing to pursue this matter since it will undoubtedly hurt his future employment prospects or his ability to raise VC funding for a new venture. Every VC firm I have ever dealt with has been extremely averse to investing in cases with a high risk of legal issues, so the current matter may make Bambrogan radioactive in the future. On the whole, the future of both cases in question is unclear, but it is obvious that there is more to the story than meets the eye.

By Michael McDonald of Oilprice.com

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  • canada dry on August 07 2016 said:
    Why Bambrogan started the lawsuit seems rather obvious, because it was the right thing to do. If you were treated that badly by your company you're just going to sit there and do nothing? If his allegations are true then the mismanagement and corruption needs to be exposed.
  • Philip Branton on August 08 2016 said:
    There is WAY more to this than meets the eye. The real details are in the devil-ish fine print. We wonder just how aware the investors truly are. The fact that these four people decided to "go off on their own" is a sure sign that the true benefits were not openly revealed. Hyperloop ONE looks like a pipeline, operates like a pipeline...and is in court like a "Keystone Pipeline".

    We highly wager that neither sides lawyers will ever really divulge to a jury what the "real" fuss is about. The Hyperloop staff has better have a pow wow. Pensions are a stake.

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