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Integral Settles With EBS’s Tolat for Company Stock; Will Appeal on Other Counts

Integral Development Corp has settled a portion of its claims against its former co-founder and chief technology officer Viral Tolat that relate to his holding of company stocks, Profit & Loss understands.

The latest action follows the US District Court’s ruling in February denying Integral’s multiple claims against Tolat, which were lodged in 2013 after its earlier attempt to temporarily prevent him from joining EBS as CTO was unsuccessful.

At the time of the summary ruling, the judge ordered further evaluation and settlement regarding the economic remedy requested by Integral, which sources with knowledge of the matter claim were recently settled in full.

Integral’s civil action included claims of securities fraud against Tolat, based on an alleged attempt to sell his shares in the company to EBS at an inflated price.

The firm claimed that this was part of a plan to force Integral to pay a higher price to buy back its stock, in order to prevent an acquisition bid by EBS.

These claims were rejected by the summary verdict of the District Court.

“This court-enforced settlement confirms for Integral that Viral Tolat deliberately attempted to manipulate Integral and its stock for his own gain in connection with his new employment,” says Tim Mahota, general counsel for Integral.

“In addition, the agreement now mandates an option for Integral to repurchase Tolat’s remaining shares at a prearranged price over the next two years. In essence this person is forfeiting 13 years of stock vesting for a poorly thought out attempt to game the system and his previous employer,” he adds. 

“It’s an incredibly high price for him to pay, but is an appropriate penalty given the magnitude of his wrongdoings. We are thankful to the court for ensuring that justice was served in this portion of the case.”

Profit & Loss also understands that Integral is appealing a further nine of the actions which had been denied by the court.

Key among these is its claim that Tolat admitted to downloading Integral’s proprietary source code to a memory stick on the last day of his employment before wiping the memory of his company laptop and returning it to Integral on his departure.

According to documents submitted to the court, Integral alleged that Tolat disclosed its trade secrets to a competitor and used his knowledge to assist in the development and launch of EBS Direct, which was announced in 2012.

But in the February summary ruling the judge rejected the charges, stating that “there is no evidence in record to support this conclusion”.

Court documents show that Integral applied for an extension to the deadline for lodging its appeal hearing to 20 August, due to the signing of a settlement agreement between the parties to “resolve part of this appeal and the underlying District Court case”.

Earlier this month Tolat was promoted to global head of product for EBS in addition to his role as CTO, following a restructuring of the senior management team.

Sources familiar with the matter claim that EBS considers Integral’s attempt to appeal the decision to be a distraction as the summary verdict dismissed the accusations before it went to the jury stage.

“The case had no merit and was thrown out by the judge. He ruled against Integral on every count,” they add.

But Integral’s legal representative, Jack Russo, who is a managing partner at Computerlaw Group, said in February that his firm remained confident that the Ninth Circuit Court of Appeal “will reverse this summary ruling and require that a full trial on the merits occur in this case".

nicola@profit-loss.com

Profit & Loss

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