Cybereason CEO Sues to Halt Deadlock Around Critical Funding

CEO Eric Gan sued Cybereason’s top investors, alleging their refusal to approval critical financing has left the endpoint vendor teetering on the edge of bankruptcy.

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Gan told the Delaware Court of Chancery that a deadlocked board of directors and a dire financial crisis would, if unresolved, push Cybereason into bankruptcy within days. He claims that former U.S. Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital and SoftBank Vision Fund are deliberately obstructing financing efforts to maintain control over the company.

Specifically, Gan’s firm MCW HK Limited proposed a funding plan to raise $150 million, which he said would stabilize the company and allow for a governance structure that prioritizes independent oversight and shareholder fairness. But this proposal has been blocked by Mnuchin and SoftBank, who support a plan that Gan said would cement their control over Cybereason at the expense of other shareholders (see: Why Cybereason Is Making Its 3rd Round of Layoffs Since 2022).

“Unless this deadlock can be broken, the company will be irreparably harmed,” Gan wrote in a 17-page complaint Monday. “If immediate financing is not secured, the company will be forced into Chapter 11 bankruptcy, inflicting catastrophic losses on employees, customers and shareholders, a crisis manufactured entirely by Liberty and SVF’s intentional obstruction.”

How Cybereason’s Board Ended Up Deadlocked

Both Liberty and SoftBank dismissed Gan’s claims as “meritless” in statements to Bloomberg, and didn’t immediately respond to an Information Security Media Group request for comment. Cybereason, which is named as a defendant, told ISMG that the firm is currently reviewing Gan’s complaint and will respond appropriately through the legal process. Gan led SoftBank’s business development unit for many years (see: Cybereason Taps SoftBank’s Eric Gan to Replace CEO Lior Div).

Gan and his family office own about 6.8% of Cybereason’s shares, while Liberty Strategic Capital owns about 6.6%, and SoftBank Vision Fund owns about 20%, according to the lawsuit. SoftBank Vision Fund is a segment of SoftBank Group, which Gan said owns about 31% of Cybereason’s outstanding stock. Cybereason agreed in November to merge with Trustwave and form an entity owned by SoftBank (see: Trustwave, Cybereason Merge to Form an MDR Security Stalwart).

In July 2024, Gan said he warned the board that the firm needed additional equity funding of at least $100 million to sustain Cybereason’s operations. Since then, Gan said 13 different financing proposals have been presented to the board, all of which he said were blocked by Mnuchin and SoftBank representative Daniela Llobet because they would dilute the control of affiliated investment firms Liberty and SoftBank.

He said Cybereason’s board, which should have seven directors, is now effectively reduced to four active members because of resignations and abstentions: Gan, Mnuchin, Llobet and former Vodafone Deputy CEO Sir Julian Horn-Smith, who supports Gan’s proposal. With only four remaining directors, Gan said the Cybereason board has been locked in a 2-2 voting deadlock over the company’s future.

“On Jan. 27, 2025, both Izhar Amony from Charles River Venture and Santo Politi from Spark Capital submitted their resignation as directors to the board prior to its scheduled meeting,” Gan wrote in the complaint. “Mr. Gan reached out to both directors but they both expressed their concern regarding conflict of interests at the board level and deadlock issues.”

Bankruptcy Looms as Gan Seeks Court-Appointed Custodian

Gan’s proposal, led by Gan’s family office, would raise $150 million through the issuance of preferred stock, and would create a seven-member board with five independent directors. Meanwhile, Mnuchin and Llobet’s proposal is a $100 million to $150 million non-binding Series H term sheet that would consolidate board control in the hands of Liberty and SoftBank and punish existing investors who fail to participate.

“The Liberty/SVF proposal contained a ‘Pulled-Through Prior Preferred’ or pay-to-play provision designed to punish any existing investor who failed to participate in the funding round and only benefit select ‘Strategic Investors’ by allowing them to exchange their common stock for a new series of preferred shares with certain rights and benefits,” Gan wrote.

When Cybereason’s board voted at Friday’s meeting, the result was a deadlock, with two votes in favor of each plan. With the deadlock unresolved and no path forward, Gan said Cybereason is at imminent risk of running out of cash. If a solution is not reach by Saturday, Gan said Cybereason will default on its debt facility with Hercules Capital and likely be forced into Chapter 11 bankruptcy.

“By blocking the only binding financing option and forcing a self-interested transaction and only informing Mr. Gan one minute before the Feb. 7 meeting started, Mr. Mnuchin and Ms. Llobet acted in bad faith and violated their fiduciary duties,” he said. “Mr. Mnuchin and Ms. Llobet placed their interests above those of the ocmpany and its stockholders by refusing to approve the Gan transaction.”

With the clock ticking, Gan and his family office are seeking emergency judicial intervention. Given the board deadlock, Gan is seeking the appointment of a custodian to act in Cybereason’s best interests and approve a financing solution. Gan also claims Mnuchin and Llobet breached their fiduciary obligations and acted in bad faith by blocking legitimate financing options and instead pushing a self-serving deal.

Given the time-sensitive nature of Cybereason’s financial situation, Gan also filed a motion to expedite the case, asking the court to hold a final hearing no later than mid-March 2025. Gan said a drawn-out legal process would allow Mnuchin and Llobet to gain even more control over Cybereason. By resolving the matter quickly, Gan said the court can ensure Cybereason remains solvent and able to offer services.

“Plaintiffs believe that setting a prompt hearing on this matter will allow the company to negotiate with its lenders to buy additional time to raise the necessary funds,” Gan wrote in a motion to expedite filed Monday.