7 ms·

David Lee files lawsuit against former partner Ron Conway

112 points by kirillzubovsky 9y ago

tomasien 9y ago
This is filed not served right? That would mean he’s threatening to sue Ronco I believe. That may seem like semantics but the difference is not trivial at allll.
- jo909 9y ago
  The filing is what makes it officially into a real lawsuit before the court, so it's not a threat anymore but the first step of the actual thing. It might be a tactical move where they still hope to settle out of court, but that's not what I would see as "threatening to sue".
  - tomasien 9y ago
    "The filing is what makes it officially into a real lawsuit before the court" That is only true in the sense that the court will now view it as "something" rather than "nothing". You are not being sued until a lawsuit is served, and the difference between having a lawsuit filed against you and having a lawsuit served against you is massive. A lawyer has a decent amount of liability for filing a lawsuit that turns out to be total bullshit, but that liability skyrockets once it is served, so if the public is trying to determine how seriously to take a suit, whether it is threatened/filed/served are three very different tiers.
    - jo909 9y ago
      How many lawsuits are filed but then not served intentionally (not from lack of being able to find the other party)? If the liability skyrockets there should be a decent number of cases where the suing party has a change of heart and does not take it to the next tier of seriousness. If there isn't the difference is without distinction. There is little incentive to use the filing as a seperate tactical step and then not try to serve or delay it (for the plaintiff). I'd say the filing is the start of the lawsuit for the plaintiff, the serving is the start for the defendant. Which makes the filing the overall start of the lawsuit. It is definitely not a mere threat.
- dang 9y ago
  OK, we'll add 'files' to the title above.
- rlanday 9y ago
  First, you file the lawsuit with the court. Then, you hire someone to serve the papers against the defendant to notify them of the lawsuit.
owens99 9y ago
> Conway also believed his former partner to be paying himself far and above the fund’s $250,000 annual salary cap by skimming off of SV Angel funds through a technique known as a fee waiver, a fairly common way for fund managers to cover the costs they are expected to invest upfront. Can anyone clarify how this would be considered skimming? Here's a definition of a Fee Waiver from Mondaq.com: A management fee waiver or conversion is a strategy whereby the general partner or management company of a private equity fund "waives" the management fee (often up to 2 percent of assets or committed capital per annum), which would typically be paid quarterly and treated as ordinary income for tax purposes, in exchange for an increased "carried interest," which often qualifies for long-term capital gain treatment. In many cases, the receipt of an additional carried interest pursuant to a fee waiver can be used to satisfy the general partner's capital contribution obligation. The key to the strategy is to change the management fee, which is unconditionally payable, into a payment that is conditioned upon future profitability of the fund. However, that does not necessarily mean that the fund has to have an overall net profit for the general partner or manager to earn the waived fee. In many variants of the strategy, the additional carried interest obtained as a result of the waiver results in a priority allocation of the fund's profits from certain investments and/or during certain fiscal periods, unlike the basic carried interest. In these cases, the general partner can realize some carried interest (and, effectively, some portion of the "waived" management fee) even if the fund has a net loss at the end of the overall investment lifecycle. If the structure is upheld, a management fee waiver effectively allows the general partner to largely convert ordinary income (management fee), currently taxed at a maximum federal rate of 35 percent, into capital gain, currently taxed at 15 percent. There also may be a deferral benefit — delaying current taxation on the waived management fee income and pushing the tax to later years when the gains that produce the additional carried interest are realized. Limited partners who are individuals may also avoid limitations that might otherwise apply to management fee deductions. Finally, the waived amount is categorized as a "profits interest," which is not subject to employment taxes, whereas management fee income generally is. For New York taxation purposes, there is no rate differential between ordinary income and capital gains, although there could be a deferral benefit. In addition, some non-resident general partners who waive their management fees take the position that no New York income or New York City unincorporated business tax is due on the additional carried interest.
ronilan 9y ago
I know it is a little off topic, but it has to be said: Ronco's cameo in Katy Perry's "This is How We Do" was brilliant [1] [1] https://www.youtube.com/watch?v=7RMQksXpQSk https://www.youtube.com/watch?v=7RMQksXpQSk
stevenj 9y ago
If it's in fact true that David didn't first try to talk to Ron about this, that's surprising to me.
- deleted 9y ago
  [deleted]
deleted 9y ago
[deleted]
staunch 9y ago
This is all just tax loophole money anyway thanks to the carried interest scam. They're fighting over money that rightfully belongs to schools and the needy. These seem like particularly greedy thieves.
CalChris 9y ago
a technique known as a fee waiver ... The concept was apparently foreign to Conway, however. How is this possible? VCs are masters of terms and veteran VCs are grandmasters of terms.
- sverige 9y ago
  It is not uncommon for smart, experienced people to suddenly become ignorant rubes in the context of lawsuits.
  - CalChris 9y ago
    But after discovery, I think Conway will have fee waiver shoved down his throat. Like if he's ever done it or if anyone else in the firm has ever done it .... I know next to nothing about either of these guys but IMHO Conway should have settled this matter yesterday.
yeukhon 9y ago
Are Ron Conway and Kellyanne Conway related?
- porfirium 9y ago
  I don't understand the downvotes, as usual. I wish it was mandatory to write a reason every time you donwvote someone. They don't seem to be related.
  - bjshepard 9y ago
    In some sense, John Horton Conway (the inventor of Conway's game of life) is also related to them, but we are also all related to one another. I wonder what the relationship between shared kinship structures and last names are.
  - yeukhon 9y ago
    They probably think I am trolling or off-topic. Here you can’t do either. I don’t mind getting downvoted. It’s only an online thing. But thanks for the reply though, totally appreicate it.
    - mikestew 9y ago
      They probably think I am trolling or off-topic You are off-topic, but I downvoted your comment for being lazy. HN isn’t your mobile operating system’s virtual assistant.
      - porfirium 9y ago
        That's not really the way it is. It is possible for something like this (these two being related) to not appear on wikipedia, and it is also possible the commenter is not able to come up with something interesting on google (maybe he suspects he's not using the correct search terms).
        mikestew 9y ago
rdl 9y ago
I hate the way the tax code, and subsequent decades of legal hacks, produces weird structures like the standard VC fund. There have to be ways of collecting the same total taxes, or more, without distorting markets.
- Shivetya 9y ago
  not to be overly cynical but a complicated, convoluted, tax system, benefits government by assuring there will always be a violation they can act on to get to those they want.
- CalChris 9y ago
  I think the purpose of VC is to distort markets. What the tax code is trying to do here is to incentivize VCs and entrepreneurs to take risks. At the same time, you need anti-abuse to keep people from unfairly taking advantage of the incentives. This ends up being complicated. Maybe something like a 10% corporate AMT would help. Your WSGR startup lawyer will strongly recommend against trying A Double Irish Dutch Sandwich. Apple can do this because they will hire an army of lawyers to keep the Feds busy. You can't but at the same time you have to compete with Apple and Google and .... A corporate AMT would help level that playing field. Won't happen.
crazyalx77 9y ago
The threats are no more. This is now officially a lawsuit as its been file with the courts.
kirillzubovsky 9y ago
Personally, I've had the best experience with David, and it would be hard to imagine that he would've filed a suit if he wasn't right. He seems as a very honorable guy to me.

This is filed not served right? That would mean he’s threatening to sue Ronco I believe. That may seem like semantics but the difference is not trivial at allll.

jo909 9y ago
The filing is what makes it officially into a real lawsuit before the court, so it's not a threat anymore but the first step of the actual thing. It might be a tactical move where they still hope to settle out of court, but that's not what I would see as "threatening to sue".
- tomasien 9y ago
  "The filing is what makes it officially into a real lawsuit before the court" That is only true in the sense that the court will now view it as "something" rather than "nothing". You are not being sued until a lawsuit is served, and the difference between having a lawsuit filed against you and having a lawsuit served against you is massive. A lawyer has a decent amount of liability for filing a lawsuit that turns out to be total bullshit, but that liability skyrockets once it is served, so if the public is trying to determine how seriously to take a suit, whether it is threatened/filed/served are three very different tiers.
  - jo909 9y ago
    How many lawsuits are filed but then not served intentionally (not from lack of being able to find the other party)? If the liability skyrockets there should be a decent number of cases where the suing party has a change of heart and does not take it to the next tier of seriousness. If there isn't the difference is without distinction. There is little incentive to use the filing as a seperate tactical step and then not try to serve or delay it (for the plaintiff). I'd say the filing is the start of the lawsuit for the plaintiff, the serving is the start for the defendant. Which makes the filing the overall start of the lawsuit. It is definitely not a mere threat.
dang 9y ago
OK, we'll add 'files' to the title above.
rlanday 9y ago
First, you file the lawsuit with the court. Then, you hire someone to serve the papers against the defendant to notify them of the lawsuit.

owens99 9y ago

> Conway also believed his former partner to be paying himself far and above the fund’s $250,000 annual salary cap by skimming off of SV Angel funds through a technique known as a fee waiver, a fairly common way for fund managers to cover the costs they are expected to invest upfront. Can anyone clarify how this would be considered skimming? Here's a definition of a Fee Waiver from Mondaq.com: A management fee waiver or conversion is a strategy whereby the general partner or management company of a private equity fund "waives" the management fee (often up to 2 percent of assets or committed capital per annum), which would typically be paid quarterly and treated as ordinary income for tax purposes, in exchange for an increased "carried interest," which often qualifies for long-term capital gain treatment. In many cases, the receipt of an additional carried interest pursuant to a fee waiver can be used to satisfy the general partner's capital contribution obligation. The key to the strategy is to change the management fee, which is unconditionally payable, into a payment that is conditioned upon future profitability of the fund. However, that does not necessarily mean that the fund has to have an overall net profit for the general partner or manager to earn the waived fee. In many variants of the strategy, the additional carried interest obtained as a result of the waiver results in a priority allocation of the fund's profits from certain investments and/or during certain fiscal periods, unlike the basic carried interest. In these cases, the general partner can realize some carried interest (and, effectively, some portion of the "waived" management fee) even if the fund has a net loss at the end of the overall investment lifecycle. If the structure is upheld, a management fee waiver effectively allows the general partner to largely convert ordinary income (management fee), currently taxed at a maximum federal rate of 35 percent, into capital gain, currently taxed at 15 percent. There also may be a deferral benefit — delaying current taxation on the waived management fee income and pushing the tax to later years when the gains that produce the additional carried interest are realized. Limited partners who are individuals may also avoid limitations that might otherwise apply to management fee deductions. Finally, the waived amount is categorized as a "profits interest," which is not subject to employment taxes, whereas management fee income generally is. For New York taxation purposes, there is no rate differential between ordinary income and capital gains, although there could be a deferral benefit. In addition, some non-resident general partners who waive their management fees take the position that no New York income or New York City unincorporated business tax is due on the additional carried interest.

ronilan 9y ago

I know it is a little off topic, but it has to be said: Ronco's cameo in Katy Perry's "This is How We Do" was brilliant [1] [1] https://www.youtube.com/watch?v=7RMQksXpQSk https://www.youtube.com/watch?v=7RMQksXpQSk

stevenj 9y ago

If it's in fact true that David didn't first try to talk to Ron about this, that's surprising to me.

deleted 9y ago
[deleted]

deleted 9y ago

[deleted]

staunch 9y ago

This is all just tax loophole money anyway thanks to the carried interest scam. They're fighting over money that rightfully belongs to schools and the needy. These seem like particularly greedy thieves.

CalChris 9y ago

a technique known as a fee waiver ... The concept was apparently foreign to Conway, however. How is this possible? VCs are masters of terms and veteran VCs are grandmasters of terms.

sverige 9y ago
It is not uncommon for smart, experienced people to suddenly become ignorant rubes in the context of lawsuits.
- CalChris 9y ago
  But after discovery, I think Conway will have fee waiver shoved down his throat. Like if he's ever done it or if anyone else in the firm has ever done it .... I know next to nothing about either of these guys but IMHO Conway should have settled this matter yesterday.

yeukhon 9y ago

Are Ron Conway and Kellyanne Conway related?

porfirium 9y ago
I don't understand the downvotes, as usual. I wish it was mandatory to write a reason every time you donwvote someone. They don't seem to be related.
- bjshepard 9y ago
  In some sense, John Horton Conway (the inventor of Conway's game of life) is also related to them, but we are also all related to one another. I wonder what the relationship between shared kinship structures and last names are.
- yeukhon 9y ago
  They probably think I am trolling or off-topic. Here you can’t do either. I don’t mind getting downvoted. It’s only an online thing. But thanks for the reply though, totally appreicate it.
  - mikestew 9y ago
    They probably think I am trolling or off-topic You are off-topic, but I downvoted your comment for being lazy. HN isn’t your mobile operating system’s virtual assistant.
    - porfirium 9y ago
      That's not really the way it is. It is possible for something like this (these two being related) to not appear on wikipedia, and it is also possible the commenter is not able to come up with something interesting on google (maybe he suspects he's not using the correct search terms).
      - mikestew 9y ago

rdl 9y ago

I hate the way the tax code, and subsequent decades of legal hacks, produces weird structures like the standard VC fund. There have to be ways of collecting the same total taxes, or more, without distorting markets.

Shivetya 9y ago
not to be overly cynical but a complicated, convoluted, tax system, benefits government by assuring there will always be a violation they can act on to get to those they want.
CalChris 9y ago
I think the purpose of VC is to distort markets. What the tax code is trying to do here is to incentivize VCs and entrepreneurs to take risks. At the same time, you need anti-abuse to keep people from unfairly taking advantage of the incentives. This ends up being complicated. Maybe something like a 10% corporate AMT would help. Your WSGR startup lawyer will strongly recommend against trying A Double Irish Dutch Sandwich. Apple can do this because they will hire an army of lawyers to keep the Feds busy. You can't but at the same time you have to compete with Apple and Google and .... A corporate AMT would help level that playing field. Won't happen.

crazyalx77 9y ago

The threats are no more. This is now officially a lawsuit as its been file with the courts.

kirillzubovsky 9y ago

Personally, I've had the best experience with David, and it would be hard to imagine that he would've filed a suit if he wasn't right. He seems as a very honorable guy to me.