Central Florida technology company Violet Defense Group Inc. and venture capital firm Kirenaga Partners LLC are being sued by former investors who allege Kirenaga leadership committed fraud that “effectively created a Ponzi scheme.”
A 10-day trial period for the suit is planned to begin in Orange County on Oct. 14, 2024, according to a document filed with the 9th Judicial Circuit Court in Orange County on Feb. 14.
Five investment firms filed the original complaint against Violet Defense, Kirenaga, Kirenaga Managing Partner David Scalzo and six related firms on Nov. 3.
The plaintiffs are as follows:
- New York City-based Iroquois Capital Investment Group LLC and Iroquois Master Fund Ltd.: Iroquois invested at least $375,000 into Violet Defense’s Series A2 round and Series B round through firms controlled by Kirenaga. Iroquois separately invested $2 million directly into Violet Defense's Series B round.
- Liechtenstein-based Alpha Capital Anstalt: Alpha Capital invested $750,000 into Violet Defense’s Series B round, per the complaint.
- New York City-based Shay Capital LLC: Shay Capital invested $750,000 into Violet Defense’s Series B round, per the complaint.
- Minneapolis, Minnesota-based V4 Capital Partners LLC: V4 invested $750,000 into Violet Defense’s Series B round, per the complaint.
Orlando-based Violet Defense produces and sells ultraviolet light-based disinfection technology and UV-based agricultural lighting. Violet Defense is a portfolio company of Cocoa Beach-based Kirenaga, and Violet Defense’s CEO from 2018-2022 was then-Kirenaga Managing Partner Terrance Berland, who is not a defendant in the lawsuit.
The plaintiffs allege the defendants from 2020-2022 breached agreements and memorandums with the plaintiffs, breached their fiduciary duties owed to their investors and committed “fraudulent misconduct.” Examples cited include:
- The complaint alleges during a 2020 Series A2 round and a 2021 Series B round that Scalzo and Kirenaga used money raised from investors to buy secondary shares of Violet Defense from earlier investors, without telling the other investors.
- The complaint alleges Scalzo, due to his leadership position at Kirenaga and Kirenaga’s status as Violet Defense’s biggest shareholder, was able to “trade with himself” at share prices he set. The complaint alleges this inflated the value of Violet Defense and Kirenaga, and enabled Scalzo and Kirenaga’s other partners to earn higher incentive-based compensation.
- The complaint alleges Violet Defense provided Series B investors with Securities Purchase Agreements that stated there were no events or circumstances that reasonably could have “material adverse effects” on Violet Defense. However, the complaint alleges Violet Defense and Scalzo knew, or should have known, key contracts with potential clients would not be executed and Violet Defense would not meet its revenue projections.
- The complaint alleges Scalzo knew or should have known in 2021 that a high-level executive was having an affair with a Kirenaga employee, which plaintiffs allege could have led to a lawsuit against Kirenaga. That executive was removed from his positions at Kirenaga and Violet Defense in 2022 and declined to comment for this story.
- The complaint alleges Scalzo did not disclose to investors before the close of the Series B round that Violet Defense committed $4 million — its entire marketing budget — to a sponsorship with NASCAR and the Roush Fenway Keselowski Racing team. The complaint alleges this sponsorship was disclosed to investors three weeks after the Series B round closed and investors wired their money.
The entire complaint can be read here.
The plaintiffs seek monetary damages of no less than $5 million, though the value would be determined by a jury if the case goes to trial. In addition, the plaintiffs seek attorneys’ fees and court costs from the defendants.
The defendants are represented by Orlando-based GrayRobinson PA and New York-based Wilson Elser Moskowitz Edelman & Dicker LLP. The defendants and their attorneys on Jan. 20 filed motions to dismiss the lawsuit, according to Orange County court records.
“We deny the lawsuit has legal or factual merit, and point to the motions to dismiss that were filed by both law firms, which remain pending,” read a statement sent to Orlando Inno by GrayRobinson shareholder T. Todd Pittenger.
Fort Lauderdale-based Marcus Neiman Rashbaum & Pineiro LLP represents the plaintiffs. The plaintiffs and their attorneys could not be reached for comment.
Founded in 2012, Violet Defense’s disinfection products first hit the market in 2017.
The company has a longstanding relationship with the NBA’s Orlando Magic, which in 2019 deployed Violet Defense disinfection technology in the Magic’s locker rooms, training rooms and weight rooms. That partnership strengthened when the Magic in 2021 announced Violet Defense tech would appear in the Magic’s AdventHealth Training Center.
The Covid-19 pandemic brought more interest in disinfection technologies, and Violet Defense in 2020 partnered with Advance Concepts, an incubator backed by Wichita, Kansas-based conglomerate Koch Industries Inc. Violet Defense in 2022 was named an Orlando Inno Fire Award winner.
Meanwhile, Kirenaga and its Central Florida Tech Fund have invested in at least four startups based in Central Florida since 2019.
Sign up here for The Beat, Orlando Inno’s free newsletter. And be sure to follow us on LinkedIn, Facebook and Twitter.
