Multi-billion dollar cap table management company Carta is facing backlash after admitting that it misused sensitive client information to target startup Linear’s investors on behalf of its private stock exchange business Carta X.
CEO Henry Ward has said that it was an isolated incident involving a single employee who breached internal protocols and that only three companies were impacted. However, emails and marketing material sent by Carta, viewed by Business Insider, raise some doubts about that characterization.
An unsolicited email sent by a Carta employee late last year offered shares of number of startups on CartaX, including unicorn startups such as Airtable, Deel, Navan, Brex, and Flexport among others. At least two of the companies included on the list viewed by Business Insider also use the cap table software Carta offers, which help companies keep track of their shareholders.
In the email, the Carta employee writes that sellers had already been lined up for all the companies in question and that they were obligated to transact at the prices listed, which in many cases represented discounts of more than 50% compared to the companies’ most recent valuations.
A spokesperson for one of the companies contacted by Business Insider said they were shocked to discover that their shares had been listed for sale, saying they had not opted into the CartaX marketplace, something that Ward had said is a prerequisite for share sales. The spokesperson asked for anonymity because they were speaking on private matters related to the financials of their company.
Another company, who also requested anonymity, confirmed that they use Carta’s cap table software.
Other companies contacted by BI either declined to comment or did not respond.
The controversy around Carta’s commingling of its cap table and brokerage businesses centers on the trove of sensitive information that companies entrust Carta with, including contact information of shareholders, share price and transaction data. This information could be used by CartaX to identify and solicit potential sellers of startup shares, potentially creating conflicts of interest for a company that bills itself as a trusted steward of information while also chasing commissions on brokering deals.
Though Ward has said that the misuse of client information was a one-off incident, many are not convinced. Adam Struck, managing partner at Struck Capital which has more than 150 portfolio companies on Carta’s platform says he finds it hard to believe that CartaX employees would have access to this valuable information and not use it.
“If those controls were not set up, I’m going to operate under the assumption that literally every sell-side broker at Carta X has been using this information to their advantage,” he told Insider.
It’s not the first time that the issues of conflicts of interest at CartaX have been raised. Lisa Whittaker, Carta’s former Head of Corporate Compliance, said she was fired in 2021 for raising concerns about conflicts of interest and attempting to implement guardrails to prevent exactly this type of situation.
Carta’s Former Head of Liquidity Solutions Andrea Lamari, who worked on the launch of CartaX, said she was similarly pushed out of the company after raising concerns about legal issues with the platform.
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