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Comment by zaroth | Hacker News Reader

Can't imagine this is legal. It sounds like they are trying to dilute out Conrad specifically by significantly repricing the earlier rounds and then covering existing employees with new grants. Anyone out of the good graces of the current management sees massive dilution and everyone else is untouched. How is this not just stealing Conrad's shares?

The extra kicker is investors signing up for the free shares agree to waive all claims... except against Conrad. Wow, that's vengeful!

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Management must have represented to investors that they were in full compliance with state regulators. I wonder how serious of a fraud this "release of claims" protects them from.

That's kind of the point of shares, isn't it? They're super manipulatable and for just this reason: you can get rid of people you don't like. They can fight in court all they want, but a private company will probably win.

Wait, what? I though the whole point of shares (per GP) is they're all (within the same class) treated equally, regardless of holder, specifically to prevent these kinds of shenanigans!

Imagine if the management of a company voted to void some arbitrary 10% of the shares -- the ones held by people they didn't like, merely to claim more of the company for themselves. That would absolutely not be kosher.

But then (assuming the grandparent's description of what happened is accurate), Zenefits is doing exactly the same thing by more roundabout means. Surely the laws on this aren't so easily circumvented? And even if not, isn't this as a big red flag to future investors?

That's one way of looking at it, of course. I think another is to say that the concept of stock as compensation (especially in a private company) is to give the company maximum flexibility. They (presumably) don't have cash, so they give stock as a proxy for that. However, if they hit hard times, they can issue as many new shares as the BoD will allow to any new investors they want.

This includes new classes of shares. It's not "standard" practice, but it's also not uncommon--to get rid of people they want to get rid of, they can dilute them out (issuing new shares and everyone except X gets new shares), issue new classes of shares with preference, etc.

I'm sure there are laws around this, but it's also a private company so it can be tricky there. Stock in a private company is much more difficult to hold, since there are many, many ways for the company to manipulate it to the company's advantage.

FWIW, this reminds me a lot of the Facebook/Saverin case. Saverin eventually won back many of his shares; enough that he's worth about $7B now. (And then renounced his American citizenship to avoid paying taxes on it, go figure.)

It's a little different in that there may have been misrepresentations about Zenefits' fiscal health to the investors and actual illegal wrongdoing, while in Saverin's case, Facebook just felt that they could do better.

Didn't Eduardo sell his shares in the ~$20 (or even high teens) range?

Wikipedia says he still holds on to about 50M of them.

That's how many shares he had at the time of the IPO. They underlying source is correct for its time (2012), but whoever wrote the Wikipedia is misrepresenting it as being from 2015.

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