Carta, which manages the cap table for approximately 40,000 privately funded startups, will no longer act as a broker arranging deals in stock sales of those companies, following an explosive conflict of interest scandal that has already caused the company to temporarily pause sales outreach for its core business.
In a blog post on Monday, Carta CEO Henry Ward announced that “we will exit the secondary trading business to eliminate any concern that we are not acting in our founders’ best interests.”
The move follows allegations of self-dealing that surfaced this weekend on social media from one of Carta’s customers. The customer, the CEO of Linear, accused Carta of using his startup’s confidential data without his approval to build out Carta’s own order book for its secondaries market platform.
Carta blamed the incident on a rogue employee. But shortly after the allegations surfaced this weekend, the Carta temporarily paused all sales outreach, Fortune has learned.
Carta’s Chief Revenue Officer, Jeff Perry, posted the notice in one of the company’s internal Slack channels on Sunday afternoon, instructing employees that Carta was “pausing sales outreach until further notice.”
“We don’t expect it to be paused for more than a few days,” Perry wrote in the message. “We will monitor and provide guidance on a daily basis.”
In the message, Perry went on to say that the most important thing right now is that Carta is taking care of its customers and to “remind them why they trust Carta.” Using all caps emphasis, he instructed employees not to respond to inbound questions about the matter, then told them to flag them to himself and one of Carta’s vice presidents. Perry told employees on Sunday that Carta—which was last valued at $8.5 billion in a tender offer, according to Axios—would update everyone when they can “resume business as usual.”
Carta CEO Henry Ward initially responded to the allegations on Twitter, then published a blog post on Medium on Sunday that laid out Carta’s data privacy policies. In the post, Ward said that Carta’s outreach to three companies’ shareholders was “absolutely a breach of our privacy protocols. And we have addressed it over the weekend.” Ward said that Carta was continuing to investigate the incidents “to make sure it never happens again” and also said he was rethinking whether Carta should be in the liquidity business at all.
Ward appeared to have reached his conclusion on Monday, announcing that the company would no longer be involved in the “liquidity” business. That business accounts for only $3 million of Carta’s annual revenue, according to Ward, compared to the $250 million of annual revenue that its cap table business generates (along with $100 million in fund administration, and $20 million in private equity). The perception that Carta was using confidential data to boost its secondary markets business just wasn’t worth the risk to its primary businesses.
“Having ground truth data is not an advantage if we can’t use it. And it is a disadvantage if people think we use it. For example, if we send emails to prospects through publicly available information, how do customers know if we sourced it publicly or internally? Will they believe us if we tell them? And does it matter? Just the appearance of impropriety is damning,” Ward wrote on Monday.
“We will focus on what we do best, which is cap table and fund administration software. There are many many talented people working on the private market liquidity problem. We will enthusiastically cheer for them from the sidelines,” Ward wrote.
A Carta spokeswoman didn’t respond to an immediate request for comment.
Do you have an insight to share? Got a tip? Contact Jessica Mathews at jessica.mathews@fortune.com or through the secure messaging app Signal at 479-715-9553.
