Cloudbrink Faces SEC Scrutiny Amid Co-Founder’s Lawsuit

In November 2023, Cloudbrink, a Bay Area-based digital security startup, faced serious allegations from its co-founder and former Chief Technology Officer (CTO), Subburajan “Subbu” Ponnuswamy. He filed a wrongful termination lawsuit against the company and its CEO, Prakash Mana, accusing them of deceptive practices to secure a $25 million Series A funding and retaliating against him for raising concerns.

Allegations of Deceptive Practices

Ponnuswamy, who co-founded Cloudbrink in 2019, claimed that after Mana joined as CEO in 2020, the company engaged in a “‘fake it till you make it’ scheme.” He alleged that Mana falsified revenue figures, purchase orders, and customer testimonials to present an inflated picture of the company’s financial health to investors and board members. Specifically, during the Series A funding round announced in November 2022, Mana is accused of using fabricated customer information and false revenue data to attract investment. Additionally, Ponnuswamy alleged that Mana promised company stock to customers in exchange for their participation in these deceptive practices.

Retaliation and Termination

The lawsuit detailed that Ponnuswamy raised his concerns about these practices in multiple meetings with the board. Following these discussions, he alleged that Mana’s behavior towards him became increasingly hostile. Mana reportedly warned Ponnuswamy to stay within his designated role, stating, “If you come into my swim lane, I’ll make sure to take parts of your swim lane.” Furthermore, Mana allegedly instructed Ponnuswamy to create fake user and customer accounts, a directive he refused. After presenting evidence of the alleged falsifications to board members and investors in March 2023, Ponnuswamy was terminated from his position.

Company’s Response

In response to the lawsuit, Cloudbrink issued a statement through spokesperson Mark Fox, affirmatively denying Ponnuswamy’s allegations. The company stated its intention to file a formal denial in court and emphasized its commitment to defending its reputation. The board expressed full support for the current leadership and direction under CEO Mana.

Regulatory Scrutiny

The lawsuit has reportedly attracted the attention of federal agencies, including the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). Sources indicate that individuals connected to the case have been interviewed by investigators from these agencies. However, both the SEC and DOJ have declined to comment on the existence of any investigations.

Implications for the Startup Ecosystem

This case highlights the potential pitfalls of the “fake it till you make it” culture prevalent in Silicon Valley. The allegations against Cloudbrink echo other high-profile cases where startups have been accused of misleading investors and stakeholders. The situation underscores the importance of transparency and ethical conduct in maintaining investor trust and the overall integrity of the startup ecosystem.

Conclusion

As the legal proceedings unfold, the tech community will be closely monitoring the developments in the Cloudbrink case. The outcome may have significant implications for startup governance and the responsibilities of tech entrepreneurs towards investors and employees.