Celebrity Texting App Sued By Founders For Defrauding Them Of Shares

Celebrity texting app Community, which allows celebrities including Ashton Kutcher, Jennifer Lopez, John Legend, Paul McCartney, Amy Schumer, and Mark Cuban to directly communicate with their fans via SMS text messaging, and its CEO Matthew Peltier were sued for securities violations on Thursday in the Central District of California.

The plaintiffs, Charles Buffin, Max Levine, and Steven Levine, are founders and investors of the company. They alleged the defendants swindled them out of the majority of their shares in the company before it earned millions of dollars in investment rounds.

Buffin and Max Levine founded the company in 2013 and brought in Peltier for his technical background. In 2014, Peltier took over as CEO of the company, currently valued around $450 million. Community’s first investor was Steven Levine, the father of Max Levine, who invested $50,000. Peltier agreed to give Steven Levine a 2.5% equity stake in the company for his investment. The company “struggled to onboard users and produce significant revenue,” causing Max Levine and Buffin to leave the company for other opportunities but they each kept 750,000 shares of the company. Buffin and Max Levine relied on Peltier to update them on the company.

The plaintiffs claimed that in 2018 Peltier told them the company was failing, that it had $70,000, and was spending $40,000 monthly. Afterward, Peltier allegedly “began to float the idea of repurchasing their shares,” and continued to remind them that Community “was drowning and that their shares had no value.” In October 2018, Peltier supposedly gave Buffin and Max Levine an ultimatum stating that the company would go bankrupt and they would lose their investment or they could sell their shares to the company for about $20,000. Peltier supposedly emphasized that this was a good deal because their shares were currently “worthless.”. The plaintiffs asserted that Peltier led them to believe he was doing this “to do right by them.”

According to the plaintiffs, Peltier “coyly alluded to having two new founders coming on board … who would try to turn around this supposedly failing business but refused to disclose any further information.” In November 2018, Buffin and Max Levine signed Stock Repurchase Agreements, agreeing to sell back 600,000 of their shares for $22,002 each (an approximate price per share of $0.0360). The plaintiffs said they “trusted and relied on Peltier not to swindle them,” however, Peltier’s statements about the company “were fraudulent and clear breaches of his fiduciary duties.” 

Peltier allegedly concealed that the company was negotiating or had made a deal in an investment round led by actor Ashton Kutcher and talent agent Guy Oseary. Community raised money at a $180 million valuation and continued to raise an additional $35 million as part of this round. However, Peltier never disclosed this information to Buffin and Max Levine. The plaintiffs claimed that if they knew this information, they would not have sold their shares. 

In January 2019, Ashton Kutcher tweeted his Community phone number, which garnered a lot of publicity and helped to grow the company and user base.

The plaintiffs have sought damages in excess of $30 million for fraudulent misrepresentation, intentional concealment, Securities Exchange Act violations, securities fraud, breaches of fiduciary duty, negligent misrepresentation, breach of contract, and other counts against the defendants. The plaintiffs have also sought punitive damages and restitution. 

The plaintiffs are represented by Miller Barondess, LLP.