Bay Area tech exec says company lied to get $25M from investors, fired him for speaking up
A Bay Area tech founder has alleged in a wrongful termination lawsuit that his former company and its CEO repeatedly lied to investors, and then fired him for protesting those actions.
In a lawsuit filed Wednesday in Santa Clara, Subburajan Ponnuswamy, who co-founded the digital security company Cloudbrink in 2019 and served as its chief technology officer, alleged that Cloudbrink CEO Prakash Mana used false information to secure funding from investors. In the complaint, Ponnuswamy alleged that Mana, who joined as CEO in 2020, had conducted a “‘fake it till you make it’ scheme” by falsifying revenue, purchase orders and customer quotes in presentations for investors and board members. He also alleged that Mana promised customers Cloudbrink stock in exchange for helping him falsify the revenue.
In a statement from Cloudbrink provided by company spokesperson Mark Fox, the company stated that it “affirmatively denies Ponnuswamy’s allegations and will be filing a formal denial in court at the appropriate time.”
Our policy is to refrain from commenting on ongoing legal matters; however, we can affirm that Cloudbrink maintains an impeccable reputation in the industry. The company plans to vigorously defend itself in this lawsuit and considers the allegations to be contradictory and without merit. The Board is fully aware of Ponnuswamy's claims and continues to support Cloudbrink's current leadership and strategic direction," the statement added.
Ponnuswamy's legal filing specifically highlights Cloudbrink's $25 million "Series A" funding round, announced by the company in November 2022. The former executive alleges that Mana used fabricated customer testimonials and misleading revenue information to secure the funding. He also claims that Mana falsified invoices to satisfy investors’ due diligence checks.
"In some instances of falsified revenue or customers, CEO Mana did not issue any invoices even six months after claiming the revenue. For other 'customers,' Mana generated a batch of invoices around the time of fundraising—months or even quarters after recording them as ARR—simply to create a paper trail," the complaint stated. "However, there was no evidence of these invoices being sent to the alleged customers, and no payments were received."
According to the complaint, Ponnuswamy discussed his concerns with Cloudbrink's board members during four meetings. Following these discussions, Mana's behavior towards the chief technology officer allegedly became increasingly retaliatory. At one point, Mana reportedly warned Ponnuswamy, "If you step into my territory, I'll make sure to take over parts of yours." Mana also allegedly asked Ponnuswamy to create fake user and customer accounts, which Ponnuswamy refused to do, according to the lawsuit.
In the complaint, Ponnuswamy claimed that his forced departure occurred after a March meeting with board members and representatives from The Fabric and Highland Capital Partners, both of whom were listed as lead investors in Cloudbrink's $25 million funding round. According to the complaint, Ponnuswamy "presented solid evidence of falsified annual recurring revenue (ARR) and customer counts."
Two weeks later, the Cloudbrink board informed Ponnuswamy that "while it appeared to be true that CEO Mana had been reporting fraudulent customers and revenues to the Board and investors, they could not terminate him due to concerns that it might harm Cloudbrink's sales operations and customer relationships," according to the lawsuit.
Ponnuswamy further alleged that the board then informed him they would be terminating him instead and that they planned to "clean up" the financial records. His contract was subsequently terminated, with his last day being March 20.
"It became evident that the Company had chosen to cover its tracks and align with CEO Mana's unlawful 'fake it till you make it' approach rather than adhering to lawful business practices," the complaint stated.
In a statement, Ponnuswamy remarked that "high-profile cases like those of Elizabeth Holmes and Sam Bankman-Fried are just the visible part of a much larger issue, with similar illegal practices in smaller startups often going unreported or inadequately investigated due to the complicity of company boards." The two investors named in the lawsuit from The Fabric and Highland did not immediately respond to requests for comment.
Ponnuswamy claims he was wrongfully terminated in retaliation and was not provided with the stock options he had been promised.
"Essentially, CEO Mana and the Board waited for Mr. Ponnuswamy to develop the technology and ship the product, carefully avoided issuing any additional promised stock options, diluted his existing options, and then terminated him because he consistently raised concerns about the Company's illegal and fraudulent activities," the complaint stated. Ponnuswamy is seeking lost wages, punitive damages, and other relief.
