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conference lawsuit Claims Paddy Cosgrave's Web Summit lost $10m after ex-director ‘secretly set up fund’

Claims come after investment fund was allegedly set up in secret to profit off company's success

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Network: Web Summit founder Paddy Cosgrave at the Lisbon event in 2018

Network: Web Summit founder Paddy Cosgrave at the Lisbon event in 2018

Network: Web Summit founder Paddy Cosgrave at the Lisbon event in 2018

The company behind Web Summit, the technology conference co-founded by Paddy Cosgrave, has claimed it lost $10m (€8.6m) as result of the actions of one of its former directors, David Kelly.

The claim arises from the alleged secret setting up of an investment fund to profit from the company’s success.

The lawsuit, in which Manders Terrace Ltd, the firm behind Web Summit, is suing Mr Kelly for breach of fiduciary duty for his own benefit was entered onto the list of the fast track commercial wing of the High Court yesterday.

The court heard Mr Kelly disputes the claims and will be filing his own lawsuit, also for entry on the commercial list, in which he will allege he was an oppressed minority shareholder.

The lawsuits come just weeks after a related action was filed by Manders Terrace against Mr Kelly and fund manager Patrick Murphy in San Francisco.

Mr Murphy is not sued in the Irish action. Bernard Dunleavy SC, for Manders Terrace, said Mr Kelly was a minority shareholder from its founding in 2009 until April 14 this year and had also been a director.

He told Mr Justice Denis McDonald that Web Summit became involved in a venture capital fund called Amaranthine Fund 1 in 2018, founded with Mr Kelly and Mr Murphy.

He said Web Summit was at the centre of “a technology ecosystem” and was able to draw on relationships with investors and prominent technology sector figures in setting up the fund.

Web Summit invested $2m (€1.7m) and Mr Murphy $250,000 (€216,000), Mr Kelly did not invest, but this was “not particularly unusual”, Mr Dunleavy said. Instead, he was paid by Web Summit to hold a management role in the fund to serve the company’s interests.

Web Summit played a pivotal role in attracting investors and provided assets, data, employees and intellectual property and the fund was “enormously successful”, Mr Dunleavy said. It attracted $25m (€21.6m) of investment and Web Summit’s return was $6m (€5.2m).

Mr Dunleavy said there was discussion about setting up the “next iteration” of the fund in autumn last year but Mr Kelly announced he was leaving the firm and getting out of the venture capital business.

However, within two months of leaving, a second fund, Semble II, had been set up by Mr Kelly and Mr Murphy.

Mr Dunleavy said the claim made by his clients was that while Mr Kelly was a director and being paid to safeguard Web Summit’s interest in the first fund, he was in fact engaged in putting together the second one for the benefit of himself and Mr Murphy. He said the loss to his client could not be precisely calculated but is believed to be “of the order of $10m”.

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Frank Kennedy BL, for Mr Kelly, said there was consent for entry of the case to the commercial list. “The characterisation of the involvement and role of Web Summit and also the alleged acts of the defendant by the plaintiff are utterly in dispute and will be vociferously defended,” he said.

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