Investor sues former startup CEO for fraud

 

The rapid implosion of a Denver powdered medicine startup left a bad taste in the mouth of one investor who claims his firm lost nearly $1 million in the venture.

World Total Return Fund, run in part by Denver-based investor Ari Blum, sued former UrgentRx founder and CEO Jordan Eisenberg for fraud in Denver District Court, claiming Eisenberg intentionally misled his firm with overly rosy accounting in order to entice a Series C round of financing.

Eisenberg closed a $19.5 million round in June of 2014, with World Total Return Fund investing $850,000, according to the lawsuit. World Total Return Fund had invested a smaller amount in UrgentRx in a previous round and the company eventually raised $27 million, according to SEC filings.

UrgentRX founder appears on Fox Business' Closing Bell.

UrgentRX founder Jordan Eisenberg appears on Fox Business’ Closing Bell.

At the time of the Series C, Eisenberg claimed UrgentRx was growing into a $53 million company, according to the lawsuit. Instead, UrgentRx burned through $15 million in a year and was sold in a fire sale at the end of 2015. WTRF did not get any money back.

WTRF says in the lawsuit that Eisenberg – who launched UrgentRx in 2010 with claims that powdered packets of over-the-counter medicines were more convenient to transport and faster acting – did not submit bookkeeping documents that accurately assessed the profitability or the value of the startup. Blum declined to comment for this story.

The lawsuit, filed in late June by Tobin Kern at the law firm Volant Law, claims “Eisenberg further engaged in a course of business which operated as a deceit upon WTRF, and employed a device scheme or artifice to defraud, in order to induce WTRF to enter into a securities transactions.”

The lawsuit claims in part that UrgentRx:

  • Failed to account for $1.8 million in returns from Walgreens and CVS
  • Failed to disclose $680,000 in marketing and advertising costs
  • Overstated inventory by $490,000 by failing to factor in expiring product
  • Overstated sales by failing to account for barter
  • Missed withholding tax payments of $200,000

Eisenberg did not return a call seeking comment.

The company at one time had an office in LoDo and produced and distributed colorful packets of drugs such as aspirin and a generic version of Benadryl.

Eisenberg came up with the idea, according to press reports, after he decided there had to be a better way to carry pills in his wallet. Eisenberg told reporters he has severe allergies and always needs Benadryl on-hand in case of a reaction.

The rapid implosion of a Denver powdered medicine startup left a bad taste in the mouth of one investor who claims his firm lost nearly $1 million in the venture.

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