The dispute between digital content distributor MX1 and three former senior executives that opened a rival company is heating up. In lawsuits, the sides are trading serious allegations that include deceit, fraud, bribery, and wasting the company's money.
The company claims that the former senior executives stole its customers as well as commercial secrets and set up a rival business based on these. For their part, the former senior executives claim that the real reason for the departure of so many customers stemmed from "shoddy management by the company and the result of revelations about illegitimate payments and illegal conduct."
MX1, formerly RR Media, which manages and distributes digital content for customers worldwide, was acquired by European media giant SES for $242 million. Prior to the acquisition, RR Media was a publicly traded company listed on Nasdaq. Managed by CEO Avi Cohen, the company is today a fully owned subsidiary of SES, which is publicly traded on the Paris and Luxembourg Stock Exchanges. MX1 provides comprehensive media services to customers worldwide (mainly TV stations) and distributes content to over 2,500 TV stations.
The opening shot in the dispute was fired last December when the media services company filed a NIS 60 million lawsuit against the three former executives, claiming that they defrauded the company and acted, even when they were company employees, to transfer customers to their rival company, which they had set up in the British Virgin Islands and Switzerland.
The lawsuit filed against former MX1 CFO Shmuel Koren, former global sales manager Shlomi Izkovitz and Rami Goldberg, former Europe & Middle East sales manager includes serious allegations against the three former executives including accusations that they conspired to set up rival operations to MX1, while stealing lists of customers and their commercial terms, contact personnel and business agents as well as other information.
Preparing a secret infrastructure
In the suit that was filed for the company by the Meitar Liquornik Gevsa Leshem Tal law firm, it is alleged that the three former managers prepared while in MX1's employ, the infrastructure for rival operations, and that "this was done cunningly and secretly," among other things in order to gain sums of money from the company (more than NIS 5 million), as part of various bonuses (sales and retention payments) and realize options that were paid to them.
Then came the turn of the former senior executives to return fire. In their strong statement of defense filed by Advs. Boaz Ben Zur, Ori Shneller and Guy Raveh, Koren, Izkovitz and Goldberg hurl harsh accusations at the company's CEO Avi Cohen who they claim made sure to put money into the pockets of those close to him at the expense of the company. There were also serious charges that before the company was acquired by SES, MX1 paid under the table bribes to various agents and organizations close to its customers that "took care" of ongoing dealings between the sides, and they allege, bribes that continue until today.
The conduct described by the former senior executives, allegedly verges on the criminal, and the question is now being asked as to whether an investigation will be started following these revelations.
One of the most serious accusations arising from the defense statement is regarding bribes that were paid and are being paid by the company, some of which were stopped after the acquisition of the company. Stopping and reducing the payments, it is alleged, led among other things to a deterioration in the circumstances of MX1, and customers leaving.
The defense statement says, "Following the demands of parent company SES prior to completion of the merger process, bribes paid under the table by the plaintiff to agents and other organizations close to customers, which 'took care' of continued dealings between the sides, were reduced (and sometimes stopped). Consequently many customers stopped their dealings with the plaintiff, although after the merger the bribery payments continued by it."
The defense statement adds, "Other customers stopped their dealings with the company after they learned about the bribes paid in order to create/maintain dealings."
The former senior executives also claim that they did not "steal" MX1's customers but that they left of their own accord for a wide range of reasons that did apart from the alleged bribes. Thus, it is claimed that, "Since the company's CEO Avi Cohen assumed his position, there has been a substantial deterioration in the situation of the company," and that, among other things, the disrespect some of the customers "gained" from the CEO caused them to break off business relations with MX1.
It is also alleged that MX1 worked with TV stations in the Arab world through straw companies. "Recently as well as before it was discovered that the company owns those straw companies and TV stations in the Arab world that by law in those countries cannot have any connection with an Israeli company, they began cancelling agreements with it.
Regarding the conduct of the current CEO, the defense statement writes that, "The hostile nature of the conduct of Cohen (who mainly worried about those close to him while wasting the company's money) led the establishment of an active and militant workers committee and subsequently complaints grew among the customers about major technical breakdowns and defective handling of those breakdowns (that were caused among other things by strikes by the employees and low morale) and in the wake of this, many TV stations stopped dealing with the plaintiff."
Advs. Livian Segal and Itai Saadi of the Meitar Liquornik, Geva, Leshem Tal law firm, which represents MX1, said, "The company has always conducted itself according to the law. The lawsuit filed against Shmuel Koren, Shalom Izkovitz, and Rami Goldberg reveals how even when they were senior employees at MX1, they acted to transfer customers to a rival company that they had set up, stole commercial secrets and blatantly violated their explicit commitments, fiduciary duties and good faith."
"Now that they have been found out, the defendants are attempting to throw mud at the CEO and his good name, through allegations, that as well as being completely false, are irrelevant to the case and are simply being claimed for the sake of publicity. It is regrettable to see how senior employees choose to behave after years in which they were generously remunerated and even earned handsome bonuses for the sale of control (in the company)."
The timing of publication of the statement of defense, filed a month ago, is it would seem connected to the fact that several days ago a lawsuit was filed by the huge European corporation SES against Shmuel Koren, the company's former CFO, claiming that he concealed information from them and deceived and defrauded them."
Published by Globes [online], Israel business news - www.globes-online.com - on March 5, 2017
© Copyright of Globes Publisher Itonut (1983) Ltd. 2017