A former Rumble Inc. investor is suing the Toronto-based video platform, alleging founder Chris Pavlovski misrepresented the company’s financial health in an apparent attempt to increase his own equity stake.
Rumble is preparing to list on the Nasdaq at a valuation of US$2 billion.
David Kosmayer, a Toronto entrepreneur, said in a statement that he invested in Rumble in 2013, the year the company was founded. In August 2020, according to the claim, he agreed to sell his 20% stake back to the company for $1 million when Mr. Pavlovsky told him that Rumble’s prospects were bleak and that it would be in his interest to cash .
Mr. Kosmayer’s lawsuit, filed in the Ontario Superior Court of Justice in January, alleges that Mr. Pavlovski failed to tell him that Rumble was rising significantly as early as June 2020, and that prominent U.S. politicians, such that former Republican Congressman Devin Nunes, had joined the video platform and encouraged others to sign up.
The lawsuit claims that while Mr. Kosmayer “does not have direct knowledge of Mr. Pavlovski’s motives, it would appear that he hid this information…because he was interested in consolidating stakes in the business. , in order to maximize the company’s own gain expected growth.
Rumble did not respond to a request for comment on Wednesday. In documents filed with the U.S. Securities and Exchange Commission (SEC), Rumble said he “believes the allegations are without merit and intends to vigorously defend against them.”
Mr. Pavlovski, 38, founded Rumble as an alternative to YouTube. For many years it housed videos of cats and babies. But since 2020, right-wing politicians, pundits and content creators in the US have defended it, saying YouTube and other social media companies engage in censorship and have an anti-conservative bias. The site quickly grew from around one million monthly active users to 39 million in January. Rumble describes itself as a “neutral” platform that is “immune to null culture” and takes a hands-off approach to content moderation.
How Rumble, a Toronto-based YouTube alternative, became a haven for the MAGA crowd (with a US$2 billion valuation)
In December, the company reached an agreement with a special purpose acquisition company backed by Cantor Fitzgerald to go public on the Nasdaq at a valuation of US$2.1 billion. The deal would give Rumble access to US$400 million in cash. Mr. Pavlovski said he would use most of the funds to expand the range of personalities and content on the site.
Mr. Kosmayer’s lawsuit, which was filed by his company, Kosmayer Investment Inc., seeks to void the buyback of his shares in exchange for a 20% stake in Rumble, or the equivalent cash value, approximately $419. US. million. He is also seeking $10 million in damages. (Through his attorney, Mr. Kosmayer declined to comment.)
Mr Kosmayer, who describes himself as a ‘multipreneur’ on LinkedIn as well as the founder of a company that uses artificial intelligence to build websites, said he befriended Mr Pavlovski around 2005.
In 2013, Mr. Kosmayer agreed to invest $325,000 in Mr. Pavlovsky’s new video company, Rumble, the claim states. He also later acted as guarantor for a $1.5 million credit facility.
Mr Pavlovsky approached him for a cash injection in 2020 but changed his mind, according to the lawsuit. Instead, he reportedly presented a “disastrous” view of the company’s finances, saying ad revenue was dwindling and Rumble was in danger of losing a large number of employees. He also said that even if Rumble needed to raise funds, the process would be more difficult if Mr. Kosmayer remained a shareholder, according to the claim.
Mr. Pavlovski, through phone calls, emails and an intermediary, allegedly pressured Mr. Kosmayer to sell his entire stake, the lawsuit says. In August 2020, he agreed to sell his shares to Rumble, believing he had “a slim chance of surviving.”
“Mr. Pavlovksi and Rumble either knew the representations were false, or were reckless as to whether or not they were true,” according to the lawsuit.
The following month, with its growing user base, Rumble secured investment from conservative American commentator and Fox News host Dan Bongino and, in May 2021, raised funds from other investors, including Peter Thiel.
Despite Rumble’s growing user base and multi-billion dollar valuation, its finances are relatively modest. New SEC filings show Rumble generated $6.5 million in revenue in the first nine months of 2021 and lost $364,682.
In December, Rumble announced a “cloud technology and services agreement” with former US President Donald Trump’s latest venture, the Trump Media & Technology Group, which plans to launch a social media service.
Your time is valuable. Receive the Top Business Headlines newsletter in your inbox morning or evening. register today.