Maker Studios

Maker Studios Co-Founder Danny Zappin Sues The Company Over His Ouster

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It was only about six weeks ago that Maker Studios co-founder Danny Zappin stepped down from the CEO role, replaced by Endemol exec Ynon Kreiz. Well it turns out that he didn’t “step down,” so much as he was “pushed out.” And now he’s taking the company to court over his ouster.

Zappin just filed a lawsuit against Maker’s partners and investors, claiming concealment of secrets, breach of fiduciary duty, and constructive fraud. According to the lawsuit, Maker’s board diluted the company’s common stock in favor of preferred stock in order to remove him as the company’s CEO.

Maker Studios was founded in 2009 by a collection of top YouTubers, including Zappin, Lisa Donovan, Scott Katz, Kassem Gharaibeh, Shay Butler, and Ben Donovan. The idea was to create a creator-friendly multichannel network on YouTube that would help individual producers to create better videos, collaborate with each other, and boost the number of subscribers and views that they all had. It also hoped to help them all monetize those videos a little bit better.

Since then, Maker has grown to become one of the top five networks on the YouTube platform, according to comScore, with more than 2 billion views a month. It’s also attracted a fair amount of outside investment, including $36 million from Time Warner Investments.

The lawsuit names Maker co-founders Ben Donovan, Lisa Donovan, and Ynon Kreiz, as well as investors such as Time Warner Investments’ Rachel Lam, Greycroft’s Dana Settle, Mark Suster, and his fund, GRP Partners. It claims that the board:

“…fraudulently, and in a breach of all their fiduciary duties… entered into a series of quid pro quo agreements, including employee agreements, whereby they either caused stock to be issued to one or more of the Interested Parties; allowed one or more of the Interested Parties to exercise, sell, or vest certain stock rights early; agreed to sell stock to the other Interested Parties or those aligned with the Interested Parties to create a favorable voting block; and/or awarded employment and money, among other things, to one or more of the Interested Parties in exchange for their director seats with the purpose and intent of diluting the Common Stock; decreasing the rights of the Common Stock, including to relegate the Common Stock to minority status, increasing the right of the Preferred Stock, including obtaining majority status for purpose of electing director seats; voted on each other’s contracts while being an interested party to the transaction at issue, and to deny the Common Stock shareholders of their rights.”

In other words, it claims that the senior management at Maker conspired to create a favorable voting block with which they could hire Kreiz as CEO and push Zappin out. According to the lawsuit, Lisa Donovan and Ben Donovan voted in favor of the current board structure, and in exchange got cushy salaries, bonuses, the ability to exercise up to 50 percent of their common stock, and the ability to sell that stock. Through a series of stock sales by Lisa Donovan, Ben Donovan, as well as Zappin, majority control of the company’s common stock shifted enough that the board could remove Zappin.

Even before the management change, Zappin was a controversial figure within Maker and the broader YouTube community. Last year, he got into a very public spat with top YouTuber Ray William Johnson after Johnson announced that he was leaving the studio. In that exchange, it was also revealed that Zappin had once been convicted of a felony drug possession, long before founding maker.

The lawsuit is a major reversal from the memo that Zappin sent to employees at the time that he left the CEO role, at a time when he was expected to remain an advisor to new CEO Kreiz. In that memo, he wrote:

“After much thought and discussion with Ynon, my co-founders and the board, I am happy to announce that I will be stepping down as the Maker Studios CEO. Ynon, our Executive Chairman will now be taking over my responsibilities and operational oversight of Maker.

While I won’t be responsible for day to day operations, I will remain on the board of directors and will serve in an advisor role to Ynon and the company. I will work very closely with Ynon during this transition phase to make sure everything goes smoothly.”

Representatives from Time Warner Investments and GRP Partners could also not be reached for comment.

UPDATE: Maker Studios issued the following statement:

“The lawsuit is without merit and the allegations are baseless. We regret that Danny is taking this step and involving the Company he co-founded in litigation.”