The Department of Justice has reportedly opened a criminal investigation into HR and payroll startup Deel over allegations it hired a corporate spy to leak information about its biggest rival, Rippling, reports The Wall Street Journal.
In a statement emailed to TechCrunch, Deel says it is “not aware of any investigation. We will always cooperate with the appropriate authorities and provide any necessary information in response to valid inquiries.”
Deel’s statement then makes its own allegations against Rippling. It points to its own lawsuit alleging that its rival was engaged in a “smear campaign,” arguing that it beat the competitor in the marketplace and adding, “the truth will prevail in court.” Rippling declined comment.
This is arguably the biggest drama between two HR startups ever.
To recap, Rippling sued Deel in May and revised the suit in June, alleging that his rival planted a corporate spy. The Rippling employee was caught in a sting operation and confessed to being a paid spy for Deel in an Irish court in a written affidavit that looks like a Hollywood movie. The employee testified that he took Rippling’s sales leads, product roadmaps, customer account information, names of superstar employees, whatever was asked of him, and turned it over to Deel executives.
Rippling’s lawsuit, which is ongoing, accuses his opponent of violations of the federal racketeering statute (known as the RICO statute and commonly used against organized crime) among other laws he cited. But despite the use of phrases like “criminal syndicate”, this was a civil action, not a criminal prosecution.
Deel sued Rippling, also alleging spying by impersonating a customer, among other claims.
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The spy lived in fear
The man who confessed to the spying agreed to testify in Rippling’s case, and Rippling agreed to pay for his legal fees and travel expenses, according to the man’s cooperation agreement released as a court document and seen by TechCrunch. Deal now calls the man Ripling’s “paid witness.”
But the man returned to court claiming his family was living in fear because he believed he was being followed by men from the Deel. Deel’s lawyer initially denied this but he later found out that Deel hired surveillance.
Paying the spy
Rippling’s most recent win came in late November, when he obtained bank records. The records showed that Deel transferred money to an account held by the wife of Deel’s COO, and 56 seconds later that account transferred the same amount to an account held by the confessed spy.
Meanwhile, another court document shows that Deel founder and CEO Alexandre Bouaziz, who is called the “mastermind” of the espionage plot in Rippling’s lawsuit, has hired high-powered lawyer William Frentzen to represent him. Frentzen is a partner with Morrison Foerster’s defense team and previously headed the U.S. Attorney’s Corporate and Securities Fraud Unit for the Northern District of California.
Rippling’s attorney is none other than Alex Spiro of the white-shoe law firm Quinn Emanuel. Spiro is a former Manhattan District Attorney known for his big personality and long list of celebrity clients, from Elon Musk to Jay-Z.
So it all sounds like a plot from a John Grisham novel, with a sprinkle of the show “Suits” on top.
None of this stopped investors from backing Deel or Rippling. In October, Deel announced it had reached a $17.3 billion valuation after raising $300 million led by Ribbit Capital and Andreessen Horowitz. Rippling hit a $16.8 billion valuation in May after raising $450 million from investors including Elad Gil, Goldman Sachs Alternatives and Y Combinator.
