Match, IAC Covered Up Sexual Misconduct, Legal Filing Says

(Bloomberg) -- IAC/InterActiveCorp. and Match Group Inc. are being accused of covering up sexual misconduct allegations against a former chief executive officer as part of a broader scheme to manipulate the valuation of dating app Tinder in 2017, according to new motions filed in New York Supreme Court.

Lawyers say Tinder’s parents, IAC and Match at the time, are concealing documents relevant to an ongoing $2 billion lawsuit regarding the company’s valuation. Sean Rad, the co-founder and former CEO of the popular dating app, and other early employees claim in the lawsuit that IAC cheated them by purposefully suppressing Tinder’s valuation. That meant their shares were worth less, they argued, and that IAC didn’t have to pay them as much when they decided to cash out. The three-year-old case is set to go to trial in November. Match, which owns Tinder, was spun out of IAC last year.

As part of that case, lawyers for Rad and other plaintiffs are seeking to show that IAC and Match whitewashed an investigation of alleged misconduct against former Match Chairman and CEO Greg Blatt, in order to keep him in power long enough to complete the valuation process and avoid billions of dollars in stock option payments to Rad and other employees. Blatt, who had held various leadership roles at IAC for more than a decade by then, was appointed CEO of Tinder in December 2016, replacing Rad.

Lawyers for the plaintiffs argued IAC and Match should turn over all “notes, summaries and memoranda” related to the investigation of Blatt’s alleged misconduct toward Tinder executive Rosette Pambakian at a 2016 holiday party. Court filings this week included newly unsealed emails and deposition testimony that, plaintiffs allege, show company executives including then-IAC CEO Joey Levin and Chairman Barry Diller protected Blatt with a “sham” inquiry into the harassment incident “so that he could corrupt the 2017 Tinder valuation of which he was in charge.”

Attorneys for IAC and Match filed their own motion in response on Wednesday, reiterating their request to exclude evidence relating to the Tinder holiday party and the internal investigation into Blatt’s misconduct. “The ‘scheme’ theory advanced by plaintiffs is purely conjectural and wholly void of proof,” according to the filing states, adding that documents should remain sealed as it would “put irrelevant but highly prejudicial evidence before a jury.”

In a statement to Bloomberg News, IAC said: “The company has nothing to hide. We did prepare for exactly what came to pass: Sean Rad making scurrilous accusations, completely unsupported by even the alleged victim, in an attempt to harm the company and improperly benefit himself.”

According to a timeline described in the motions, Match’s board found out about Pambakian’s allegations in April 2017 and began an internal investigation. The valuation process for Tinder’s IPO began in May, and according to the filings and the previously disclosed lawsuit, Blatt intentionally withheld information from bankers to obtain a low valuation for the company.

Two months later, when a journalist got wind of the harassment allegations and began asking questions for a potential news story, the board suggested Blatt promptly resign his position, according to an email from Blatt to his public relations adviser. “We say this is long-planned. And we go about our business,” Blatt writes.

The suit claims that the board had debated disclosing his misconduct -- with Blatt even writing what appeared to be a draft resignation letter in an email acknowledging he “did a stupid thing” and “engaged in some snuggling and nuzzling.” Ultimately the board opted to make Blatt’s departure look like part of a planned transition the suit says, citing an email where IAC head of communications Valerie Combs writes to Levin “we need to get specific on the date of when the Board adopted a CEO transition plan, and it needs to pre-date the incident for the story to be credible should all of this come to light.” IAC and Match deny that Blatt was asked to resign

In a statement to Bloomberg, Blatt said he was “extremely confident” that he will be vindicated of the allegations against him. “As I made clear in my defamation lawsuit, Rad and Pambakian are attempting to extort an unjustified payout in their lawsuit against Match by making false allegations against me,” Blatt said. “Their claims have been repeatedly contradicted during discovery, both by sworn testimony from multiple third-party witnesses and contemporaneous documentary evidence.”

A second motion filed by the plaintiffs on Wednesday revealed new claims that Diller had been advised by counsel that the company had an obligation to disclose Blatt’s misconduct upon his resignation, citing testimony from Diller’s October deposition which has yet to be unsealed.

The motion also claims that other unreleased emails show that Diller notified Jack Welch, former chairman and CEO of General Electric Co. and adviser to IAC, that counsel had “changed his opinion,” saying “[N]ow we’re all right – protecting GB is the right thing to do but GB also makes it harder every day.”

The flurry of court filings comes as both parties prepare to go to trial in less than six months after nearly three years of suits and countersuits that has cost Match Group millions of dollars in legal fees. Earlier this month, Match and IAC moved to seal a trove documents related to the sexual misconduct investigation.

“Defendants know that if the jury sees the evidence that their investigation of Blatt was a sham and a whitewash— that the investigation was so egregiously deficient compared to how companies normally handle these situations—the jury will conclude that Defendants’ motive was to protect Blatt, to keep him in place, and to ensure that he remained at the controls to execute Defendants’ corrupt scheme by engineering a lowball valuation,” according to the suit.

Pambakian, who previously served as vice president of marketing and communications at Tinder, was originally part of Rad’s suit but withdrew after finding she had signed an arbitration agreement. She filed a separate claim against Blatt and Match Group in 2019 alleging she was fired for reporting Blatt sexually assaulted her. Her suit claims that Blatt, Match and IAC asked Pambakian to sign a non-disclosure agreement about the incident “in exchange for increased compensation,” which she declined to sign. Pambakian was initially placed on administrative leave and then fired on August 15, 2018, after four years with the dating app, according to the lawsuit.

Match acknowledged in a conference call last year that it expects its legal expenses to remain elevated. The Tinder litigation is “the most significant” lawsuit it faces and could result in legal headwinds and expenditures into 2021, according to Susquehanna litigation analyst Tom Claps. Match shares are up about 36% since last July when it was spun out of IAC.

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