Thiel’s Palantir barred share sale to China’s CDH Investments

Marc Abramowitz thought he’d found kindred spirits in the founders of Palantir Technologies Inc. Like Chief Executive Officer Alex Karp and billionaire Chairman Peter Thiel, Abramowitz was a Stanford University alumnus looking to build a business empire. In 2006, Abramowitz made an investment in their then unknown startup and became a regular around the office.

In recent years, Palantir has risen to be a global data mining giant with a $20 billion valuation. Abramowitz’s shares are estimated to be worth $60 million. But his relationship with the founders has turned toxic, and they now have competing lawsuits in two states.

Abramowitz’s suit was filed last week in Delaware’s Chancery Court, saying Palantir thwarted his efforts to sell shares and that the company must disclose its books and records. Bloomberg has obtained an unredacted copy of the suit, which hasn’t been previously reported. It alleges that Palantir blocked a planned sale of Abramowitz’s shares to Chinese private equity firm CDH Investments Fund Management Co. and that Palantir violated an agreement with Abramowitz to provide him with quarterly financial statements and access to shareholder meetings.

Palantir, which sued Abramowitz in September for attempting to claim patent ownership for the company’s work, said the new suit is without merit. It said it shouldn’t have to disclose information about its inner-workings or finances because Abramowitz’s interests are at odds with the company’s. “This lawsuit is nothing more than a blatant attempt to distract from Mr. Abramowitz’s unlawful and egregious theft of our intellectual property,” Palantir wrote in an emailed statement.

Founded in 2004, Palantir is among Silicon Valley’s most highly valued and secretive companies. In addition to Abramowitz’s investment firm KT4 Partners LLC, an early backer was the venture capital arm of the U.S. Central Intelligence Agency. Palantir’s customers include government spy agencies around the world. It’s well-positioned to cash in on more government work thanks to Thiel’s relationship with President Donald Trump.

The legal battles highlight the contentious relationships between startup investors and companies that want to maintain tight control of stockholders. Investors rarely receive financial updates and wield little influence over their ability to cash out through a stock sale, merger or initial public offering.

Thiel, 49, maintains a variety of business interests, from internet, finance and energy to rocket ships. Abramowitz, 64, has his own eclectic mix of holdings. He has owned, operated or invested in a medical startup, a lumber business and a hobby-and-craft store, according to a former employer, the private equity firm Riverlake Partners LLC.

Abramowitz purchased Palantir shares through his KT4 Partners from 2006 to 2008, according to the suit. He claimed contracts entitled him to quarterly financial statements and annual shareholder meetings, neither of which ever took place. This didn’t appear to bother him much at the time, because he began to frequent the startup’s Palo Alto, California, headquarters. He spent so much time at Palantir’s campus from 2010 to 2015 that he requested his own office, according to the suit filed by Palantir in September.

Palantir’s trust in Abramowitz broke down after the investor filed for five patents in his name for work completed by the company, according to the September lawsuit. Palantir claimed he stole trade secrets.

During the past two years, Palantir interfered in two attempts by Abramowitz’s firm to sell stock, according to his suit. KT4 Partners negotiated in May 2015 to sell preferred shares to Highbridge Capital Management LLC, once majority-owned by JPMorgan Chase Co. When Abramowitz’s group notified Palantir of the sale, Palantir dispatched an adviser to Highbridge in an attempt to persuade the firm to purchase shares directly from the company. Alexander Fishman, the adviser and a former Palantir employee, was told by a Highbridge managing partner to leave because an agreement had already been made. Palantir’s CEO personally intervened to approve the transaction after he was informed that JPMorgan CEO Jamie Dimon was going to contact him, the suit alleged.

In December 2015, KT4 Partners and other shareholders, including early Palantir employee Rosco Hill, had negotiated the sale of hundreds of millions of dollars’ worth of stock to a fund organized by TPG. The planned buyer was China’s CDH Investments, according to the unredacted court filing. Hill, who once served as “advisor to the CEO,” told Palantir about the proposed sale, and the company again dispatched the same advisory firm as before. CDH Investments backed out of the deal after that meeting, the suit said. Stuart Schonberger, managing director at CDH Investments who was involved in the proposed deal, didn’t respond to a request for comment.

In August 2016, Palantir sought to retroactively amend the contracts with Abramowitz’s firm to remove references to financial disclosures and annual meetings, the suit said. It also tried to stipulate that incoming shareholders wouldn’t have access to such information if KT4 Partners sold its shares. A month later, Palantir filed suit. Since then, its CEO has begun to publicly entertain the idea of providing a consistent way for stockholders to cash out, including a potential IPO.

The Delaware case is KT4 Partners LLC v. Palantir Technologies Inc., 2017-0177, Delaware Court of Chancery. The California case is Palantir Technologies Inc. V. Abramowitz, 16CV299476, California Superior Court, Santa Clara County (San Jose).

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Thiel’s Palantir in escalating court battle with early investor

Bloomberg