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WPP Slaps Spot Runner With $13M Securities Fraud Suit

This story was written by David Kaplan.
Web-based TV creative ad agency Spot Runner is being sued by WPP Group for securities fraud and breach of contract, AdAge reports. WPP, which helped lead a $40 million funding in the Los Angeles company about three years ago, is accusing the Spot Runner of failing to disclose a stock sale to other shareholders. The UK ad holding company is particularly incensed that Spot Runner allegedly boasted of WPP's stake in it to attract buyers. WPP holds a 30 percent stake in the company, sources told paidContent.

WPP's suit names Spot Runner CEO Nick Grouf and co-founder David Waxman, as well as investors like Pilot Group's Bob Pittman, Index Ventures' Danny Rimer and Battery Ventures' Roger Lee. Peter Huie, Spot Runner's general counsel, was also targeted too.

In a complaint (pdf embedded after the jump) filed April 9 in federal court in California, WPP said it is seeking about $13 million in damages. It also wants Spot Runner to cover legal fees. In its filing, WPP says that rather than try to improve and build up the company, Spot Runner "perpetuated a 'pump-and-dump' scheme in which they aggressively promoted the company to new investors (often by promoting that WPP was an investor in and supporter of the company) and then sold new investors large quantities of their own secondary shares at ever-increasing valuations." WPP alleges the fraudulent activity took place between Feb. 2006 and March 2008. More after the jump

For its part, a Spot Runner rep told paidContent that it will fight the suit, which was filed in U.S. District Court in the Central District of California. The company declined to offer more than a statement: "This situation is unfortunate; we had hoped that we would have had a long relationship with WPP.  We believe the claims are without merit and we will vigorously defend against them, including taking all necessary legal action to protect Spot Runner's reputation."

One source close to the company speculated that WPP had filed the suit in order to recover some cash due to the dismal ad market. This source said that WPP had the opportunity to sell its share in 2007 and 2008, before the market collapsed and wanted to make up for what it considers to be a missed opportunity. The source added that Spot Runner had informed all shareholders then that it was giving them the opportunity to sell because its shares were in high demand in the days before the market turned. In its filing, WPP denies it was ever given prior notice and that Spot Runner conspired to deceive them. WPP adds that if it knew it had sold certain shares in Feb. 2006, it would never have invested its $10 million in the company's third funding round.

Later on, when Grouf, Waxman, Pittman, Battery Ventures and Index Ventures proposed selling shares in March 2008, WPP says it wasn't told that they had sold a collective $40 million worth of shares before. At the time, WPP says it was given the chance to sell roughly 152,000 shares for $900,000, while the others sold almost 3 million shares for $17.8 million.

Spot Runner was considered a hot acquisition target for a while. But since August, as the ad economyand then the real economystarted to fall apart, the self-serve TV ad generator has had three layoff rounds. In all, the company has laid off over 200 staffers. Nevertheless, the company is pressing ahead with an online media buying solution called Project Malibu, which it hopes to launch this summer once it completes its testing.

Since launching three years ago, Spot Runner has raised $111 million from number of investors, including UK media group Daily Mail (LSE: DMGT) and General Trust, Spanish-speaking media giant Grupo Televisa, hedge fund Legg Mason Capital Management, French luxury group Groupe Arnault/LVMH, who were the most recent. Original backers include Allen & Company, Battery Ventures, Capital Research and Management, CBS (NYSE: CBS), Index Ventures, The Interpublic Group, Tudor Investment Corporation as well as WPP.

WPP Sues Spot Runner


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By David Kaplan
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