Ousted Zocdoc CEO accuses fellow cofounders and CFO of foul play in new lawsuit

Filed yesterday, the suit describes a collaborative effort among Zocdoc executives and at least one investor to mislead the former CEO and chairman so that he could not protect himself from a sudden expulsion.
By Dave Muoio
12:28 pm
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Cyrus Massoumi, the cofounder and former CEO and chairman of doctor search and appointment-booking platform Zocdoc, has filed a lawsuit alleging that his fellow cofounders and the company's CFO conspired to remove him from the company through "an elaborate series of lies and deceptions."

The suit, filed yesterday in New York's Supreme Court, describes a series of events leading up to a Zocdoc board meeting held in November 2015.

The company had been investigating new hires to take on the responsibilities of Nikhil Ganju (cofounder and current CEO), Oliver Kharraz (cofounder and current board member), and Netta Samroengraja (former CFO and current chief business officer). Aware of this, the suit alleges that these three executives coordinated a plan that would replace Massoumi with Ganju and, importantly, keep the former CEO and chairman from exercising options that would allow him to take majority control of the company.

"Knowing that they intended to execute their coup at Zocdoc's November 2015 board of directors meeting, defendants falsely told Mr. Massoumi that the meeting would cover only routine matters," the suit reads. "They then manufactured fake meeting materials and even rehearsed fabricated presentations in front of Mr. Massoumi that they never intended to deliver. Because defendants carefully pretended to follow their usual routines in preparing for the November 2015 board meeting, Mr. Massoumi reasonably relied on defendants' misrepresentations, and believed that the board meeting would involve nothing out of the ordinary."

The suit also suggests varying levels of support for the scheme among institutional investors with a seat at the table. It says that David Weiden, a partner at Khosla Ventures, was copied on and responded to emails regarding the false plans, but during the board meeting appeared to have known about the defendants' intentions. (Despite this, Weiden is not listed as a defendant in the suit.) On the other hand, the suit specifies that Ken Howery, who represented Founders Fund's stake at the time, refused to support the board's actions during the meeting.

The success of this plan improved each defendant's position at Zocdoc at the cost of Massoumi's leadership position and the value of his shares in the company, the suit reads. With this filing, Massoumi seeks to invalidate his removal as CEO and chairman, receive compensation for monetary damages resulting from the alleged actions, and invalidate the actions of Zocdoc's board since December 2015.

WHAT'S THE IMPACT?

A major component of Massoumi's argument is that Zocdoc's position in the market appears to have deteriorated since his alleged ouster. The suit points to "poor management" as the direct cause of Zocdoc's decline, which has harmed the interests of Zocdoc stakeholders such as Massoumi.

"Zocdoc is now a shadow of the company it once was, mired in a steep financial decline, failing to raise further capital, and taking on debt with crippling interest rates," the suit reads. "The company has lost 14 key executives in recent years, a sign of employees' loss of faith in the company due to defendants' murky, ever-changing business strategy."

These decisions have also had an impact on the patients and providers Zocdoc's platform was designed to support, the suit notes. For example, the company no longer allows Medicare and Medicaid patients to book appointments through the platform to sidestep state and federal laws, and controversially shifted its pricing model from a transparent flat annual fee to a licensing fee plus an initial appointment booking fee.

"The defendants have led the company in a way that harms every group that it was created to serve – patients, doctors and other healthcare workers," the suit reads.

The drama of a lawsuit from its former CEO and chairman isn't likely to help Zocdoc build up credibility among investors or other business partners. Should the court rule in Massoumi's favor and reinstate his position as the company's head, the lawsuit's critique of specific business decisions suggests that he would push the company to adopt a different strategy.

THE LARGER TREND

Zocdoc was founded in 2007 in New York, and today works across a number of care specialties with major insurance carriers such as UnitedHealthcare, Blue Cross Blue Shield, Aetna, Cigna and Humana.

As noted in the suit, Zocdoc hasn't closed a major funding round since its impressive $130 million raise in 2015, but that's not to say that the company has been wholly inactive in the time since. Within the last nine months, for instance, the booking platform responded to telehealth demand by introducing a handful of virtual appointment options, including its HIPAA-compliant Zocdoc Video Service.

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