A pension fund filed suit in Delaware against Jack Dorsey and several other board members at
The lawsuit, made public Wednesday, accuses Dorsey of forcing through the acquisition of Tidal—which was “beset by controversy,” including fraud allegations—after hatching the plan with his “close personal friend,” also known as Shawn Carter, during a yacht cruise in the Hamptons in 2020.
News of the transaction, which made no business sense, sent Square’s price plunging 7% in March 2021, “wiping out billions of dollars of market capitalization,” according to the heavily redacted complaint in the Delaware Chancery Court.
“The market appears to recognize the deal for what it was: a strategically dubious transaction at a wildly inflated valuation, obviously driven by Dorsey’s personal friendship with Carter and reflecting a significant governance failure at the company,” the derivative suit says.
Block declined to comment through a spokesperson Wednesday. Tidal and Jay-Z, who now sits on Block’s board, aren’t named as defendants.
According to the complaint, Tidal was plagued “almost from day one by a maelstrom of dysfunction and controversy” after a consortium of recording artists led by Jay-Z bought the company for $56 million in 2015 and sought to build a musician-friendly streaming service.
By mid-2020, those efforts had allegedly proven a failure. The company “had made little headway” in cracking a market dominated by behemoths like Spotify and Apple Music, and Jay-Z began looking to “dump” the venture, the suit says.
He allegedly turned to Dorsey, founder of Square and Twitter Inc., with whom he had developed a close relationship rooted in “common interests in the worlds of philanthropy and cryptocurrency.”
The deal closed in April. Dorsey stepped down as CEO of Twitter in November. Square was renamed Block in December.
Although Dorsey has defended the transaction publicly, claiming it will help the payment processor branch out, the price was excessive “even accepting the strategic rationale for the deal at face value,” according to the complaint.
Analysts have allegedly blasted the transaction as “a $300 million bar tab to hang out with Jay-Z” and a way for Dorsey to move money “from his publicly traded company to a company owned by a guy he likes to hang out with.”
Other members of Square’s board, meanwhile, looked the other way, “consciously disregarding their duty to exercise appropriate oversight of Dorsey,” the suit says. The other directors named as defendants include former Treasury Secretary Lawrence Summers.
The complaint was originally filed under seal Jan. 27 by the City of Coral Springs Police Officers’ Pension Plan.
Cause of Action: Breach of fiduciary duty.
Relief: Damages, costs, fees, and interest.
Attorneys: The pension fund is represented by Saxena White PA.
The case is City of Coral Springs Police Officers’ Pension Plan v. Dorsey, Del. Ch., No. 2022-0091, complaint unsealed 2/2/22.