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Blink Health is a startup that aims to make generic drugs cheaper through price transparency and a slick smartphone app. It has been called the “Expedia for prescription drugs.” The company launched in February and has raised more than $75 million in venture funding. Now its co-founders, Geoffrey and Matthew Chaiken, are being sued in the Southern District of New York by Eugene Kakaulin, its ex-CFO, for breach of contract and violating the protective whistleblower provisions of the Dodd-Frank Act by firing him after he allegedly alerted them to securities violations.
The New York Post reported on the suit last week using a very New York Post headline: “Generic Viagra peddler accused of stiffing business partners.” (Update: The Wall Street Journal broke the story a couple of hours earlier.)
The lawsuit involves a familiar name: Joe Lonsdale’s new firm, 8VC, is an investor in Blink. Other investors named in the lawsuit include Burch Creative Capital, the venture firm of J. Christopher Burch (co-founder of the fashion brand Tory Burch), MedImpact, and Bill Doyle, the man that introduced Bill Ackman to Valeant.
Doyle may have introduced the Blink founders to Valeant, too: The lawsuit alleges that they were eager to sell some of their shares in Blink to a third party because one of them “lost half [his] money on Valeant stock.” (Other reasons cited include the need for a Hamptons house.) The complaint includes many accusations against Blink and the Chaikens: Using stolen data from a competitor, inflating revenue with an unorthodox accounting method, not paying vendors, misrepresenting transaction data, maintaining an unethical consulting relationship with an employee of MedImpact (a vendor and strategic investor), forcing employees to buy back their stock options when they left.
There’s even a sad text exchange between CEO Geoffrey Chaiken and his father, Dr. Barry G. Chaiken, over stock options, which is included as evidence in the lawsuit: “As a parent it is concerning that if this is your approach to us, your treatment of other people in life and business suggests a future no loving parent wants for their child,” the alleged text reads.
One of the Chaikens loaned the company $4.8 million, requiring quarterly interest payments on it, to “take advantage of losses generated by the company and to offset their personal income in 2015, which was primarily from the sale of equity in Blink,” the complaint alleges. The complaint also accuses Matthew Chaiken of using Blink’s customer relationship management dashboard to analyze and openly discuss the drug purchase history of employees and people he knows socially.
Blink Health provided the following statement: “The complaint is false, malicious and unjustified as a matter of fact and law. The plaintiff is angry that he was terminated for cause and the complaint reflects his malicious and untrustworthy character.” 8VC did not provide a comment.
Lonsdale isn’t mentioned by name in this lawsuit. He has been involved in a few others in recent years, though. In 2015, he was sued for sexual assault by an ex-girlfriend. Lonsdale denied the allegations, and the case was dropped, but the shocking details that emerged from that suit reverberated around the Valley. The investors in Formation 8, his venture fund at the time, reportedly did not know about the lawsuit when they invested. Formation 8 broke up in 2015. Last month that break-up was the subject of a detailed BuzzFeed investigation, which describes Lonsdale’s failed attempt to bring Silicon Valley startups like Wish into Asia.
Lonsdale is also a defendant in an ex-employee lawsuit against Hyperloop One, the well-funded transportation startup. Lonsdale invested in Hyperloop One via Formation 8 and sits on its board. That lawsuit accuses Lonsdale of breaching his fiduciary duty when he allegedly insisted the company hire his younger brother as the company’s exclusive investment bank and frequently asked Hyperloop One engineers to stop working so they could give tours to his friends.
8VC’s website currently features an essay Lonsdale penned in August called “A Deficit of Leadership.” It includes lines like, “Great leaders must understand how to act in such a way that they exhibit all the virtues in unison,” and quotes Cyrus the Great, Confucius, and Jesus Christ.
