Cybereason CEO Files Lawsuit to Resolve Funding Stalemate

In a troubling development, Cybereason’s CEO, Eric Gan, has filed a lawsuit against the firm’s primary investors, alleging that their refusal to approve crucial financing is driving the endpoint security vendor toward bankruptcy. The litigation underscores a significant leadership struggle within the company, which, according to Gan, is at imminent risk of insolvency.

Gan has taken his case to the Delaware Court of Chancery, contending that a deadlocked board of directors, coupled with dire financial conditions, could result in Cybereason declaring bankruptcy within mere days. He accuses Liberty Strategic Capital, led by former U.S. Treasury Secretary Steven Mnuchin, along with SoftBank Vision Fund, of intentionally obstructing financing efforts to maintain their influence over the company.

The proposed funding strategy put forth by Gan’s firm, MCW HK Limited, seeks to secure $150 million aimed at stabilizing Cybereason and establishing a governance framework prioritizing shareholder interests. However, this proposition has faced staunch opposition from Mnuchin and SoftBank, who favor a plan that, according to Gan, would bolster their control at the expense of minority shareholders.

In his 17-page complaint, Gan asserts, “If immediate financing is not secured, the company will be forced into Chapter 11 bankruptcy, inflicting catastrophic losses on employees, customers, and shareholders.” He emphasizes that the financial crisis stems directly from “intentional obstruction” by Liberty and SoftBank. The potential misuse of tactics aligned with the MITRE ATT&CK framework, such as initial access and privilege escalation, raises concerns about the decision-making processes and governance failures leading to this crisis.

Both Liberty and SoftBank have dismissed Gan’s allegations as unfounded, as reported to Bloomberg. In addition, Cybereason, also named as a defendant in the lawsuit, indicated that it is reviewing the complaint and will respond through appropriate legal channels. Gan’s prior tenure managing SoftBank’s business development unit adds layers of complexity to the power dynamics at play.

As specified in the lawsuit, Gan and his family office control approximately 6.8% of Cybereason’s shares, while Liberty boasts around 6.6%, and SoftBank asserts a 20% stake. Cybereason recently agreed to merge with Trustwave, an arrangement that has sparked further scrutiny regarding these stakeholders’ motives.

Gan has warned the board since July 2024 about the urgent need for at least $100 million in equity financing to ensure operational viability. He contends that 13 financing proposals have been rejected by Mnuchin and SoftBank’s representative, citing concerns over the dilution of their control. The company’s board, initially designed to consist of seven directors, has effectively been reduced to four active members, resulting in a significant voting gridlock over crucial decisions.

The failed attempts to resolve disagreements within the board culminated in a deadlock during the recent meeting, leaving Cybereason facing an acute cash flow crisis. Should negotiations not progress, Gan argues that the company risks failing its debt obligations and could be forced into bankruptcy.

In light of the pressing situation, Gan’s family office has requested emergency judicial intervention. He insists that a court-appointed custodian is necessary to facilitate decision-making in the best interests of Cybereason and to approve the requisite financing. Additionally, Gan’s motion to expedite the case underscores the urgency of the matter, stating that prolonged legal disputes could further entrench conflicts of interest within the board. The outcome of this lawsuit may significantly influence Cybereason’s financial future and overall corporate governance.