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Peter Thiel’s VC Firm Is Sued by Its Former Top Lawyer

Lizette Chapman

(Bloomberg) -- The former general counsel of Mithril Capital, a venture capital firm co-founded by investor Peter Thiel, is suing her ex-employer for wrongful termination and retaliation against her for acting as a whistle-blower. Crystal McKellar, the former Mithril attorney and managing director, filed the countersuit Thursday, claiming that management punished her for alerting authorities to alleged financial fraud at the firm.

In the complaint, McKellar reconstructs several conversations with Thiel, Mithril’s largest backer, who is not named as a defendant. Instead, the suit takes aim at Mithril’s managing director, Ajay Royan, who McKellar alleges repeatedly lied to the firm’s investors. Royan didn’t immediately respond to a request for comment.

In a statement, a spokesman for Mithril said that the allegations in McKellar’s suit were false, "as evidence in Mithril’s lawsuit against her demonstrates." He added: "Mithril is confident they will be proven as such in court."

The filing represents the latest, and most dramatic, volley in what has become a pitched battle over the formerly low-key venture firm. Last month, Mithril sued McKellar in Texas, alleging she conducted a “whisper campaign” to sully its reputation while setting up a competing venture firm. It also filed a separate suit in Delaware last month, alleging that McKellar breached confidentiality and other agreements and was fired for cause.

McKellar’s complaint disputed those allegations, calling them a “pretext” for retaliation against her. In her countersuit, McKellar said that in conversations with Thiel, he expressed concern about Mithril, asking her whether Royan was suffering from a “mental episode” or was “engaged in a massive financial fraud,” after the firm reduced the size of its investment team. She also said that she felt she had no recourse to address the “ongoing fraud” at Mithril, other than going to federal authorities. A spokesman for Thiel didn’t immediately have a comment.

McKellar is seeking to recoup at least $30 million in lost compensation, her lawsuit states, plus $30 million more for damages for the fallout she said she suffered because she told the Federal Bureau of Investigation and the Securities and Exchange Commission about mismanagement at the Austin, Texas-based firm.

Since launching operations in 2012, Mithril has raised $1.2 billion from investors. The firm, which relocated earlier this year from San Francisco, is known for making bets on late-stage companies including data-mining company Palantir Technologies Inc. and internet news site Reddit Inc. Its largest exit came earlier this year when Johnson & Johnson acquired surgical robotics company Auris Health for $3.4 billion.

McKellar, who once played Becky Slater on the hit TV show “The Wonder Years,” graduated from Yale University, earned her law degree from Harvard Law School and practiced law for nearly a decade before starting at Mithril. She joined her former Yale classmate Royan at the firm in 2012 as its general counsel and served as a managing director.

McKellar’s lawsuit alleges that Royan lied about Mithril in investor meetings, in financial statements, on the firm’s website and in published interviews with the press. It accuses Royan of falsely claiming he waived management fees charged to Mithril investors in 2017, falsely representing the presence of a larger investment team than it actually had and inflated the valuations of portfolio companies in Mithril’s reported financials.

The suit alleges that Royan hiked up the valuations in an effort to “pilfer hundreds of thousands of dollars in unearned management fees and millions of dollars in unjustified carried interest from Mithril’s investors.” It also claims Royan misrepresented the extent of his own investments in Mithril funds in an effort to instill false confidence in other investors.

In a statement, the Mithril spokesman said that its own lawsuit included documents that demonstrated that McKellar "personally approved the fee disclosures and repeatedly stated that Ajay had the highest integrity."

McKellar’s complaint said she urged the firm to take corrective measures while she was still an employee. That included asking Royan to hire a new chief financial officer to replace his sister, Anuja Royan, who served in that capacity. Nothing was done, according to the suit. McKellar met with federal authorities and alerted Mithril’s outside auditor to address her concerns, actions the complaint alleges she was later wrongfully terminated for taking.

The case is McKellar v. Mithril Capital Management LLC, 3:19-cv-07314, U.S. District Court, Northern District of California (San Francisco).

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To contact the reporter on this story: Lizette Chapman in San Francisco at lchapman19@bloomberg.net

To contact the editors responsible for this story: Mark Milian at mmilian@bloomberg.net, Anne VanderMey

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