A former investor in Rumble Inc. is suing the Toronto-based video platform, alleging founder Chris Pavlovski misrepresented the company’s financial health in an apparent bid to increase his own share holdings.
Rumble is preparing to list on the Nasdaq at a US$2-billion valuation.
David Kosmayer, an entrepreneur in Toronto, said in a statement of claim that he invested in Rumble in 2013, the year the company was founded. In August, 2020, the claim alleges, he agreed to sell his 20-per-cent stake back to the company for $1-million when Mr. Pavlovski told him Rumble’s prospects were bleak, and that it would be in his interest to cash out.
Mr. Kosmayer’s lawsuit, filed in the Ontario Superior Court of Justice in January, alleges Mr. Pavlovski did not tell him Rumble was growing significantly as early as June, 2020, and that prominent U.S. politicians, such as former Republican congressman Devin Nunes, had joined the video platform and were encouraging others to sign up.
The suit claims that while Mr. Kosmayer “does not have direct knowledge as to Mr. Pavlovski’s motivations, it would appear he withheld this information … because he was interested in consolidating shareholdings in the company, so as to maximize his own gain from the company’s expected growth.”
Rumble did not respond to a request for comment on Wednesday. In filings with the U.S. Securities and Exchange Commission (SEC), Rumble said it “believes the allegations are meritless and intends to vigorously defend against them.”
Mr. Pavlovski, 38, founded Rumble as an alternative to YouTube. For many years, it was home to cat and baby videos. But since 2020, right-leaning politicians, pundits and content creators in the United States have championed it, contending that YouTube and other social-media companies engage in censorship and have an anti-conservative bias. The site rapidly grew from about one million monthly active users to 39 million in January. Rumble describes itself as a “neutral” platform that is “immune to cancel culture,” and takes a hands-off approach to content moderation.
In December, the company struck a deal with a special purpose acquisition company backed by Cantor Fitzgerald to go public on the Nasdaq at a US$2.1-billion valuation. The deal would give Rumble access to US$400-million in cash. Mr. Pavlovski has said he will 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 rescind the redemption of his shares in exchange for a 20-per-cent equity stake in Rumble, or the equivalent value in cash, about US$419-million. He is also seeking $10-million in damages. (Through his lawyer, 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 became friends with Mr. Pavlovski around 2005.
In 2013, Mr. Kosmayer agreed to invest $325,000 in Mr. Pavlovski’s new video company, Rumble, the claim says. He also later acted as a guarantor for a $1.5-million credit facility.
Mr. Pavlovski approached him for a cash injection in 2020, but changed his mind, according to the lawsuit. Instead, he allegedly presented a “dire” view of the company’s finances, saying ad revenue was falling and that Rumble was at risk of losing a large number of employees. He also said that while 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, e-mails and an intermediary, allegedly exerted pressure on Mr. Kosmayer to sell his entire stake, the lawsuit says. In August, 2020, he agreed to sell his shares to Rumble, believing it had “only a slim chance of surviving.”
“Mr. Pavlovksi and Rumble knew that the representations were untrue, or were reckless as to whether they were true or not,” according to the lawsuit.
The next month, with its user base growing, Rumble secured investment from U.S. conservative commentator and Fox News host Dan Bongino and, in May, 2021, raised money from other investors, including Peter Thiel.
Despite Rumble’s growth in users and its multibillion-dollar valuation, its finances are comparatively modest. New filings with the SEC show Rumble earned US$6.5-million in revenue during the first nine months of 2021, and lost $364,682.
In December, Rumble announced a “technology and cloud services agreement” with former U.S. president Donald Trump’s latest venture, the Trump Media & Technology Group, which plans to launch a social-media service.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.