VOIP Fledgling in Founders Flap
The founders of SuperCaller Community Inc. are seeking to rescind the sale of SuperCaller to i2Telecom and collect damages of at least $40 million, according to the lawsuit they filed last December in U.S. District Court in San Francisco. Their suit alleges that i2Telecom’s directors and officers carried out an elaborate scheme to trick the founders of SuperCaller into relinquishing control of their company and intellectual property. I2Telecom says the suit is without merit and has moved to dismiss the case.
SuperCaller was founded as Limcom Inc. in February 2001 by Lew Lim and Darius Mostowfi. The Mountain View, Calif., startup developed a box that enables standard telephones to make voice-over-IP calls over broadband Internet connections.
In their complaint, the SuperCaller's founders say that in May 2002 a newly formed company with few assets, called Excel Capital Partners Inc., contacted them about investing in SuperCaller. The following month, Excel changed its name to i2Telecom and entered agreements to buy 20 percent of SuperCaller’s shares for $1.3 million and jointly develop and license SuperCaller’s technology.
I2Telecom’s CEO, Paul Arena, joined SuperCaller’s board, as part of its investment. But SuperCaller’s founders claim in their complaint that the appointment was never valid because i2Telecom delivered only half of the $1.3 million it promised to invest. They further claim that Arena and i2Telecom pressured them to increase spending on product development to drain SuperCaller’s cash and make the company dependent on i2Telecom for additional funding.
In August 2002, Arena alleged that $200,000 was unaccounted for in SuperCaller’s books, according to the founders’ complaint. The complaint further claims that Arena and i2Telecom board members used the allegedly missing $200,000 to threaten SuperCaller’s founders with criminal prosecution, deportation (neither man is a U.S. citizen), and physical violence unless Mostowfi voted Lim off the board, Lim resigned as CEO, and Mostowfi assigned rights to his inventions to SuperCaller.
Interestingly, Lim did resign in September 2002, as did Mostowfi about a month later. In January 2003, i2Telecom announced it had acquired SuperCaller. Lim and Mostowfi claim their shares of the company they founded were rendered worthless in the transaction. Fourteen months later, i2Telecom went public through a reverse merger with a shell company called Digital Data Networks Inc., which was listed on the over-the-counter bulletin board and was nearly insolvent at the time of the merger.
Arena, who is still CEO of i2Telecom, had no comment on the lawsuit except to say, “The company considers the claims in this case to be without merit and will defend vigorously against them.”
The plaintiffs claim in their complaint that since June 2002, SuperCaller’s valuation has risen from $6.5 million to $40 million (i2Telecom’s market capitalization was $17 million at the close of trading on Thursday). Because of SuperCaller's change in value, defense attorneys might argue that the founders have sellers' remorse.
Naren Chaganti, attorney for the plaintiffs, dismisses such a notion. “The so-called increase in value is actually unrealized value that existed from the beginning,” he says. “It’s not the result of somebody’s doing.”
Even if SuperCaller’s value had decreased since it was sold to i2Telecom, the founders still would have tried to get the company back, because they would have been entitled to the value of the company at the time it was sold, Chaganti says.
I2Telecom’s current financial status is unclear, since the company has not yet reported results for the period after its merger with Digital Data Networks. Financial statements filed in the lawsuit show that for the year ended January 31, 2003, i2Telecom had a net loss from operations of $1.58 million and a cash balance of $1.6 million (the company had not yet begun generating revenue). In March, before the merger with Digital Data Networks, the company raised $2 million in a private placement.
Directors and officers of i2Telecom own about 52 percent of the company’s shares, giving them majority voting control.
— Justin Hibbard, Senior Editor, Light Reading