A lawsuit filed in November of last year by the co-founder of Cloudbrink Inc. against his former company has attracted the scrutiny of two federal enforcement agencies, SiliconANGLE has learned.

Individuals close to the matter have been interviewed by investigators from the Securities and Exchange Commission and the Department of Justice, according to sources familiar with the lawsuit.

Subbu Ponnuswamy, who co-founded the company in 2019, filed suit in California’s Superior Court alleging that Chief Executive Prakash Mana engaged in “fraudulent conduct” resulting in retaliation against Ponnuswamy and his termination from the company. Mana joined Cloudbrink, a high-performance connectivity and security service provider, as CEO in 2020.

The lawsuit against Mana and the Cloudbrink board of directors alleged reporting false or nonexistent revenue, counting nonrecurring revenue as annual recurring revenue, and counting expired or multiyear contracts as single-year revenue, which “resulted in a far rosier picture of the company’s financial situation.” The filing referenced use of fraudulent “customer quotes, invoices and purchase orders” and orchestrated an “illusion of success that was then shared with the Board and current and prospective investors.”

The Department of Justice did not respond to an inquiry from SiliconANGLE. A spokesperson for the SEC told SiliconANGLE, “The SEC does not comment on the existence or nonexistence of a possible investigation.”

Company denies allegations, co-founder refrains from comment

“Cloudbrink has consistently denied former Board Member and CTO Subburajan Ponnuswamy’s allegations,” a Cloudbrink press representative told SiliconANGLE in a statement. “Please note that the original public lawsuit has been compelled to arbitration. It is Cloudbrink’s opinion that Subbu filed in public court to sensationalize his allegations and damage the company.”

The spokesperson added: “Regarding your question, to the Company’s knowledge, no individuals currently associated with Cloudbrink have been interviewed or contacted by the SEC or DOJ with requests for interviews on any topic, including the allegations by its former CTO, Subbu Ponnuswamy, which Cloudbrink vehemently denies. We are sad and disappointed to be in this situation with somebody who was once an integral part of Cloudbrink family, and our early journey. Cloudbrink is confident in its position and looks forward to prevailing in the matter.”

Asked for comment about the involvement of the SEC and Department of Justice, Ponnuswamy said, “I have no comments on the investigations at this time.”

If details of the investigations by the SEC and Department of Justice become public, they will shed new light on a simmering dispute that broke into the open when Ponnuswamy filed his lawsuit in California last year. It is believed that a separate court filing in Delaware involving the dispute between Cloudbrink and Ponnuswamy contains additional information surrounding the co-founder’s allegations. However, documents related to the case have been sealed, and public access remains under the consideration of the Delaware Court of Chancery.

Cloudbrink announced a $25 million Series A funding round in November 2022, led by Highland Capital Partners and The Fabric co-creation studio.

The lawsuit against Mana and the Cloudbrink board of directors, and the ensuing federal investigations, provide yet another example of what can happen when Silicon Valley’s culture of entrepreneurial success is pushed too far. The prosecution of Elizabeth Holmes and Ramesh Balwani of blood-testing startup Theranos Inc., and the high-profile crash of Sam Bankman-Fried in the FTX cryptocurrency exchange scandal are two noteworthy recent examples.

Last year, former HeadSpin Inc. CEO Manish Lachwani pleaded guilty to wire fraud and securities fraud charges as part of a plan to deceive potential investors into supporting his tech startup, an AI-testing and DevOps collaboration platform. The charges included dramatically overstated revenue figures, personally altered invoices and distribution of slide decks with fraudulent information to investors. In April, Lachwani was sentenced to 18 months in prison and a $1 million fine.

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