Zocdoc co-founder sues executives for staging 'fraudulent coup' to oust him 5 years ago

Gavel court room lawsuit judge
A Zocdoc co-founder and former CEO claims that the company has "no clear direction" and has filed a lawsuit seeking to be reinstalled as CEO. (Pixabay)

In a lawsuit filed Tuesday, Zocdoc co-founder and former CEO Cyrus Massoumi paints a picture of a deceptive power struggle going on behind the scenes at the digital health company.

Zocdoc, founded in 2007, is a popular online platform that allows patients to search for doctors and book appointments.

Massoumi—who served as CEO from 2007 to 2015—alleges co-founders Oliver Kharraz, who is the current CEO, Nick Ganju, currently a board member, and Chief Business Officer Netta Samroengraja orchestrated "an elaborate series of lies and deceptions" to oust him from the company.

He's suing the executives based on allegations of fraud and conspiracy to commit fraud.

In the lawsuit filed in the New York Supreme Court, Massoumi alleges "Zocdoc is now a shadow of the company it once was, mired in a steep financial decline, failing to raise further capital, and taking on debt with crippling interest rates."

Representatives from Zocdoc did not respond to a request for comment.

The lawsuit alleges that in 2015, Kharraz, Ganju and Samroengraja orchestrated "an elaborate, multi-step scheme" to remove Massoumi from his roles at Zocdoc and steal control of the company from him.

Massoumi claims that at the time Zocdoc was in the process of finding replacements for both Kharraz, who was then chief operating officer, and Samroengraja, who was serving as chief financial officer.

The complaint alleges that prior to a November 2015 board meeting, Kharraz and Samroengraja misled Massoumi about the agenda, even preparing bogus PowerPoint slides and presentations to make it seem like a run-of-the-mill meeting.

RELATED: Zocdoc defends new pricing model as necessary for expansion, some New York doctors criticize changes

During that meeting, the executives removed Massoumi as Zocdoc CEO, replaced him with Kharraz, and instituted governance changes that cemented Kharraz’s and Ganju’s control of Zocdoc.

Massoumi also alleges that he suffered a significant loss in the value of his Zocdoc shares.

According to the complaint, he was not aware of the plans to remove him, otherwise he would have exercised his options to buy Zocdoc shares and thereby acquire majority control of the company.

Press reports at the time said that Massoumi was relinquishing his day-to-day role as CEO to Kharraz and would continue on as board chairman.

Since his departure, Massoumi alleges that the executives have engaged in a “murky, ever-changing business strategy” that has led to the departure of 14 key executives in recent years and that the defendants “have led the company in a way that harms every group that it was created to serve—patients, doctors and other healthcare workers.”

Massoumi claims he helped Zocdoc achieve $71 million in revenue and 120% year-on-year revenue growth. By mid-2015, Zocdoc had grown to 600 employees, according to the lawsuit.

In August 2015, the company landed a $130 million funding round. That investment put Zocdoc at a $1.8 billion valuation, making it one of the most valuable startups in New York City, the company claimed at the time.

According to Crunchbase, the company has raised $226 million to date, and its most recent funding round was an undisclosed series D round in 2015.

Prior to Massoumi's departure, Zocdoc served patients in more than 2,000 cities across the U.S., and more than 5 million patients searched for doctors on its platform each month, according to the lawsuit.

RELATED: Zocdoc, startups expanding telehealth offerings to meet demand

Last year, Zocdoc made changes to its pricing model that drew backlash from some doctors. 

In New York, the company lowered its subscription fee but started charging for a patient’s initial booking, which means some doctors and practices that get a lot of new patients through Zocdoc will end up paying more.

Over 1,000 people signed online petitions challenging Zocdoc’s new fee structure as price gouging, arguing that the booking fee amounted to an illegal referral fee and violated professional medical ethics, according to the lawsuit.

The lawsuit alleges that by changing Zocdoc’s pricing model to include a per-patient booking fee, the current CEO and other executives decided to shut Medicare and Medicaid patients out of booking appointments through Zocdoc’s platform.

Massoumi claims that the company has "no clear direction" and, among the required reliefs listed in the lawsuit, he is seeking unspecified monetary damages and to be reinstalled as CEO.