A Cincinnati venture capital firm is suing the founder of a promising local tech startup alleging the company’s leader pocketed millions in funding for his own personal use. An investigation into the allegations also has been referred to the United States Attorney’s Office for the Southern District of Ohio, court documents state.
Refinery Ventures, a VC firm that’s led investments in a number of early-scale startups, filed a complaint Nov. 30 against laundry-delivery startup Rumby, its CEO Ben Cantey and board member Jason “Jay” Gould alleging securities fraud. Refinery said Cantey and Gould made multiple “materially false and misleading statements and omissions" in connection with Refinery’s $3 million investment into the company in August.
The case was filed in U.S. District Court for the Southern District of Ohio Western Division and assigned to Judge Timothy Black. Refinery is seeking a jury trial and a recovery of funds. The firm also has requested a temporary restraining order to protect Rumby’s remaining assets until the court rules on its motion to appoint a receiver.
Among its many allegations, the suit said Cantey paid himself large commissions; fabricated financial data to investors; and failed to disclose similar pending litigation indicating past potential fraud.
Cantey’s “most egregious misuse of investor funds,” the suit claims, was a $1.7 million purchase of a home in Hyde Park in May, ostensibly using Rumby funds.
Cantey did not respond to messages seeking comment. Two attorneys listed as his counsel in the filings said they do not represent him.
Rumby lands in Cincinnati amid Covid, founder claims fast traction
Rumby, founded in January 2020 and based out of Over-the-Rhine’s Union Hall, was considered one of the region’s more promising tech startups.
Cantey, along with co-founder Justin Boisvert, originally launched the company as a human resources software startup but quickly pivoted to providing pickup and delivery services for laundry and dry-cleaning businesses. Cantey said he considered it one of the last brick-and-mortar verticals to face disruption in the digital age.
A Springfield Township native, Cantey relocated the company to Cincinnati from Los Angeles amid the Covid-19 pandemic in late 2020. The startup had raised millions in capital, including nearly $5 million in 2022, “with a Series A in the works,” Cantey told Cincy Inno in September.
The new funds were expected to increase the company’s valuation to $100 million.
Refinery, in the filing, said it first connected with Cantey in July. Discussions around a potential investment began in August.
Cantey, in late August, claimed Rumby was “days away” from signing a term sheet with a large, reputable venture capital firm on a $20 million Series A round. It was important to Cantey to have a local investor involved, Refinery said.
Before, during and after Refinery’s investment, the firm alleges Cantey and/or Gould falsely stated Rumby was “experiencing significant growth and was financially sound.” A two-slide deck provided to Refinery put the company's revenue for May at more than $175,000 with a “runway,” or length of time before it would run out of cash, of 18 months.
In truth, the filing said, Rumby’s capital position was “dire.” The company was “undercapitalized and faced insolvency,” Refinery alleges, with only three months of capital remaining.
Refinery also was unaware of other pending litigation against Rumby and Cantey, named defendants in a lawsuit filed by former Rumby co-founder Boisvert. In that case, Boisvert claims Cantey was fired from his previous company, called Plot, for stealing funds and defrauding investors. Boisvert said Cantey forged his name on a resignation letter and stock purchase to avoid giving Boisvert promised stock options.
Additionally, Refinery claims Cantey admitted to paying himself large commissions, despite Rumby’s financial models showing Cantey not drawing any salary.
The lawsuit claims Cantey wired $1 million, then another $695,000 from Rumby to a trust account which he used to buy a house on Garden Place in Hyde Park. Property records show the property was transferred to Cantey May 20 for $1.73 million in cash.
The filing said another $1 million in transfers were made in August from Rumby’s account – nearly $200,000 toward a multi-year, multimillion-dollar Cincinnati Bengals sponsorship that included a 16-seat suite; $365,000 in two separate transfers to Cantey himself; and $18,000 on a purchase from luxury jewelry brand Cartier.
In early September, Cantey again transferred approximately $81,000 from the Rumby business account to a personal account of his.
Refinery has named Gould, a New Jersey resident, in the lawsuit for breach of fiduciary duty. Gould had assumed his board member post Sept. 1; the filing said he claimed to have invested $500,000 in Rumby. The filing said Gould failed to “quickly share information with shareholders,” misled the firm and did not take necessary actions to preserve as much value as possible in the company.
Cantey resigns; Rumby's team terminated in fallout
It appears Rumby remains in operation, although it’s unclear to what extent. Its website is still live, but its team member page has not been updated to reflect recent personnel changes.
Cantey resigned as CEO in October, and per the lawsuit, all Rumby employees had been laid off at Gould’s direction, minus Chief Operating Officer Charles Williams, who stepped in to serve as interim CEO. Rumby, as of September, employed 23 nationwide.
Effective Nov. 18, Williams, who was based in Los Angeles, also delivered his resignation, purportedly over a conflict with Gould, who was seeking an indemnification and reimbursement for $80,000 in legal bills incurred while “uncovering Cantey’s fraud.” Refinery said in its filing Gould has failed to produce any records related to that request.
In November, Gould Ventures, Gould’s private equity investment company, designated Nicholas DeLuca, an individual investor in Rumby, as director.
Refinery said DeLuca has subsequently ignored emails from Refinery about a potential buyer’s interest in acquiring the company. Neither Gould nor DeLuca's counsel responded to Cincy Inno's requests for comment.
Refinery said it’s seeking a jury trial and a recovery of its investment in Rumby. It also wants to recover damages incurred as a result of the fraudulent misrepresentation and breach of fiduciary duty. That amount is to be determined at trial, the filing said.
In regard to its request for a receiver, Refinery said “Rumby’s best chance of survival involves an acquisition.” There are several interested companies; however, the company’s assets “must be preserved until such conversations with prospective buyers take place,” the filing states.
It’s not known when a decision will be made on that front. Refinery has recommended Ohio-based Oxford Restructuring Advisors for the receiver role.
Rumby has until Dec. 7 to file a response on the temporary restraining order.
The filing notes the U.S. Attorney’s Office for the Southern District of Ohio is also investigating Cantey. The case has been assigned to Assistant U.S. Attorney Matthew Singer.
