A troubled Cincinnati tech startup has filed for bankruptcy days after one of its investors filed suit claiming fraud and a misuse of funds by its co-founder and CEO.
Rumby, which offers pickup and delivery services for laundry and dry-cleaning businesses, submitted the Chapter 11 subchapter V filing last week in United States Bankruptcy Court for the Southern District of Ohio. The filing estimates its assets between $0 and $50,000 and its debts between $1 million to $10 million, although a subchapter V case assumes a combined total secured and unsecured debts of $7.5 million or less.
The action follows an alleged securities fraud allegation made Nov. 30 by Over-the-Rhine-based venture capital firm Refinery Ventures, which is seeking to recoup a $3 million investment it made in Rumby in August. Rumby’s CEO Ben Cantey has since resigned amid the fallout, and the company’s more than 20 employees have also been terminated in recent weeks.
Per the bankruptcy filing, one of Rumby’s largest creditors is the Cincinnati Bengals. The startup in September announced a four-year, “seven-figure” deal with the team, fresh of its Super Bowl LVI appearance. Rumby owes the Bengals $1.7 million for breach of contract. It also owes an “unknown” amount in taxes to the Internal Revenue Service, the state of Delaware, where Rumby (listed under the company name Carbon IQ) is incorporated) and the state of Ohio, as well as attorney fees and parking expenses to other third parties.
Rumby’s attorney, Eric Goering, managing partner of downtown-based Goering & Goering, did not respond to request for comment. Cantey has also not responded to requests from Cincy Inno.
The filing puts the Refinery lawsuit on hold as the bankruptcy progresses.
Fast fallout: Refinery files suit, Cantey resigns
Refinery’s lawsuit gives some insight to Rumby’s “dire” financial position. Refinery, which leads investments in early-scale startups, has named the company, Cantey and board member Jason “Jay” Gould as defendants.
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, as part of a claimed $20 million Series A funding round. The firm alleges Cantey and/or Gould falsely stated Rumby was “experiencing significant growth and was financially sound.” In truth, the filing said, Rumby’s was “undercapitalized and faced insolvency,” with only three months of capital remaining. The firm said Cantey presented fabricated financial statements. A pitch deck “falsely” represented how many actual customers the company had.
The suit also said Cantey paid himself large commissions. 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 funds wired directly from Rumby to his trust account.
Cantey resigned as CEO in October, and per the lawsuit, all Rumby employees were laid off at Gould’s direction. Rumby, as of September, had 23 team members nationwide.
Gould Ventures, Gould’s private equity investment company, has since designated Nicholas DeLuca, an individual investor in Rumby, as director. DeLuca, in a deposition filed in the bankruptcy case Thursday, said the company is “unable to provide a balance sheet, statement of operations or cash flow.” To the best of his knowledge, “no profit and loss statements, balance sheets or tax returns have been prepared or filed by previous management.”
In terms of operations, Rumby’s website and social media platforms remain active, although Cantey is still listed as the company’s CEO atop the team member page. Rumby had held office at Union Hall in Over-the-Rhine, but a representative from Cintrifuse, which operates the building, said the company is no longer a tenant there.
A subchapter V bankruptcy, reserved for small businesses, traditionally offers a faster and less expensive option for reorganizing under Chapter 11, which permits reorganization under U.S. bankruptcy laws.
Per the filing, James Coutinho, a Columbus-based attorney, has been appointed bankruptcy trustee. A meeting of creditors is scheduled for Jan. 5 in Cincinnati.
