The founders of a creator network and content platform that MoneyLion purchased in 2021 are suing the neobank, alleging the fintech breached its membership interest purchase agreement, and is keeping them from receiving millions of dollars in closing stock and earn-out payments.
Jeffrey Frommer, Lyusen Krubich, Daniel Fried and Pat Capra founded Malka Media Group in 2012 before selling 100% of their membership interest to MoneyLion in November 2021.
As part of the deal, MoneyLion paid $10 million in cash and $30 million in restricted stock to Malka’s founders.
The neobank agreed to provide an additional $35 million in earn-out payments if Malka hit certain financial targets in 2021 and 2022.
But MoneyLion has refused to direct its transfer agent to remove restrictions on both the shares and earn-out payments, according to the complaint, which was filed July 23 in the U.S. District Court for the Southern District of New York.
“Without those restrictions removed, the Seller Members cannot access the shares issued to them as part of the Closing Stock Payment and 2021 Earnout Payment,” the founders allege in the lawsuit.
Malka’s founders also allege MoneyLion acted in “further bad faith” regarding the 2022 earn-out payment, claiming the neobank has refused to recognize certain achievements and issue the shares after making certain adjustments to Malka’s financial results.
“[T]hese adjustments disregard the proper calculations and methodologies explicitly set forth in the MIPA,” the founders said in the complaint.
The agreement, according to the founders, requires 2022 revenue and earnings before interest, taxes, depreciation and amortization to be calculated using the same methodologies for the 2021 earn-out period.
MoneyLion never made the adjustments in 2021 when it delivered the founders their first earn-out payment, according to the complaint.
The founders accused MoneyLion of employing “delay tactics to drag out the resolution process,” by refusing to provide any written response to their objections to the financial adjustments and refusing to retain an independent accountant.
“Seller Members have satisfied the financial targets to receive the maximum 2022 Earnout Payment of shares valued at $25 million,” the group alleges. “This has been made clear to MoneyLion on multiple occasions, and it has offered no valid counter.”
The founders are seeking damages related to MoneyLion’s failure to deliver the $25 million 2022 earn-out payment and failure to engage in a resolution process that also denied the group the shares.
MoneyLion did not respond to Banking Dive’s request for comment.
MoneyLion’s purchase of Malka in 2021 reflects an ongoing trend in the neobank space, as more fintechs look to achieve efficiencies as well as expand their services and offerings through acquisitions.
The acquisition, MoneyLion CEO Dee Choubey told Banking Dive in May, has helped the firm trim advertising expenses by migrating its marketing operations in house.
“We continue to reap the benefits of having in-house media and content capabilities with a team focused on scaling profitably while we build out the next phase of the media business,” Choubey told analysts on the company’s second-quarter earnings call Tuesday.
But, as evidenced by the recent lawsuit, business disputes can arise as a result of acquisitions.
Greenwood, a neobank that aims to serve the Black and Brown community, has faced a similar issue this year.
The Atlanta-based fintech has also made a series of acquisitions in the past several years, aimed at expanding the platform’s offerings beyond financial services to include entertainment and career development.
Like MoneyLion, however, Greenwood has also found itself embroiled in a business dispute with the founders of a company it acquired.
Founders of The Gathering Spot, the networking and co-working club Greenwood bought in 2022, accused the neobank in February of breach of contract by withholding approximately $5 million in earn-out payments owed to them and other TGS shareholders.
Greenwood responded with a countersuit in June, accusing TGS’s founders of making “false and misleading statements” affecting the private membership network’s valuation at the time of the 2022 deal.
The fallout attracted media attention and sparked accusations that Greenwood was straying from its mission.
The parties ultimately agreed on a settlement at the end of July.