Durham venture capital firm A.M. Pappas & Associates has filed a libel lawsuit against an unknown "John Doe or Jane Doe" who has been sending emails to investors and others alleging financial improprieties by the firm and two of its top executives.
Ford Worthy, a partner and chief financial officer at the firm, said the lawsuit is aimed at halting the emails and, by exercising the subpoena power that comes with filing a complaint in court, uncovering the identity of the anonymous emailer.
“We need to get in front of it and find out who is doing all this awful stuff,” said founder and managing partner Art Pappas.
The firm also has decided it must get ahead of what it views as a backdoor effort to impugn its reputation that has gone on for months and shows no signs of abating.
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“It’s a very frustrating situation to be in when you have to reach that kind of conclusion, but that’s where we are,” Worthy said. “We think that all of the facts line up on our side.”
Those facts include a forensic accounting investigation that was conducted in the wake of the anonymous emails by the Atlanta office of GlassRatner Advisory & Capital Group that found there was “no merit” to the allegations.
According to a March 10 letter written to A.M. Pappas by Sam Hewitt, a principal at GlassRatner, the firm had “unfettered access” to the accounting records of A.M. Pappas, its funds and its general partners. The firm also interviewed “all current employees ... with disbursement or investment authority and those with access to the books and records of the funds.”
Worthy said that after that forensic investigation was completed A.M. Pappas thought it might be able to “declare this episode over and move forward with our business,” but when the emails continued it decided that it had to take legal action.
Worthy declined to speculate on who the anonymous emailer might be.
A.M. Pappas focuses on investing in pharmaceutical, biotechnology and other life science companies and has $350 million under management. The firm has 10 full-time and 10 part-time employees.
Among its investors is the North Carolina state pension fund, which has invested $30.1 million in funds managed by the firm. The state’s most recent investment came in 2007.
Worthy said the anonymous emailer surfaced in October, sending missives to three of the firm’s largest investors, including the state Treasurer’s office, which handles the state pension fund’s investments. Further emails were sent to those investors, plus others, in November, December, March and May. A reporter and an editor at The News & Observer were among the May recipients.
The lawsuit filed Thursday in Durham County Superior Court seeks actual and punitive damages. It’s sparse on details about the content of the emails, referring only to “defamatory statements regarding alleged improprieties in connection with Pappas Ventures, and (allegations) that Mr. Pappas and Mr. Worthy were involved in such improprieties.”
The email received by The News & Observer, as well as emails sent to the state Treasurer’s office that were obtained through a public records request, complain of “potential misuse and misappropriation of funds” but provide no specifics.
But when Blake Thomas, deputy general counsel at the Treasurer’s office, responded to the anonymous emailer’s allegations with a request for documents or details, the emailer had nothing to offer.
“I am passing along information that I have been told by a number of other people,” the emailer wrote on Nov. 7. “Unfortunately, I do not have documents.”
Citing “whispers,” the anonymous emailer also got personal, raising questions about Art Pappas’s character.
After the initial emails surfaced, said Worthy, the firm immediately notified the advisory committees of its different funds – consisting of representatives of some of its largest investors – about the allegations.
Those advisory committees, with the firm’s blessing, decided to commission a forensic investigation.
“They reacted by saying, look, we don’t believe these allegations have any merit, but we think it would be in your interests to verify that and it is our fiduciary duty ... to have that done,” Worthy said.
Schorr Johnson, a spokesman for the state Treasurer’s office, confirmed that a representative from the state Treasurer’s office participated in the decision to retain a forensic accounting firm and legal counsel.
“Those professionals concluded that no financial malfeasance as to the funds had occurred,” Johnson said.
Pappas said his initial reaction back in October when he learned of the emails was: “Who would do this? Why would they do something this cowardly, this malicious?”