Rivalry between two Silicon Valley lenders turns personal
Bad breakups happen all the time in hypercompetitive Silicon Valley. But the drama between one consumer lending startup and its ousted founder, who now runs one of the firm’s top competitors, has turned especially ugly.
In a recently filed lawsuit, James Gutierrez accused Oportun Financial and its venture-capital industry backers of subjecting him to verbal abuse, discriminating against him on the basis of race and fostering a hostile work environment. Gutierrez founded the company in 2005 and left in 2012.
Oportun hit back this week with allegations that Gutierrez misappropriated corporate funds during his tenure, and also abused his position as CEO to use company employees as personal chauffeurs and to help plan his wedding.
The court papers suggest a fierce rivalry between two companies that tout themselves as providing a more consumer-friendly alternative to payday loans. Gutierrez is currently the CEO of San Francisco-based Aura, which, like his former company, offers installment loans and caters to immigrant customers.
His old firm and his new one also squabbled recently in the California Legislature over a proposed tweak in the state’s consumer lending rules that had big implications for Aura.
Oportun, which denied Gutierrez’s court allegations in a document filed Monday, said through a spokesman that it does not comment on pending litigation.
Gutierrez declined to answer questions on the record, but did provide a lengthy written statement. He is seeking at least $225,000 from Redwood City, Calif.-based Oportun as compensation for attorney’s fees that he incurred during an earlier lawsuit, arguing that the costs are covered by an indemnification agreement he had with the company.
“Oportun’s allegations in their response are entirely unfounded,” Gutierrez said in the statement.
Gutierrez was a student at Stanford University’s Graduate School of Business when he started Oportun, which was originally called Progreso Financiero.
Oportun stated in its recent court filing that Gutierrez was terminated in part because of his ineffectiveness as CEO. The company also said that its business performance has improved significantly as a result of its decision in 2012 to find a new CEO.
“While Mr. Gutierrez, as one of the co-founders, can be credited with having a good idea that led to the founding of Oportun, his shortcomings as CEO eventually became clear to the board,” the filing states.
“One of Mr. Gutierrez’s primary responsibilities as CEO was to raise equity from external sources at the levels necessary to maintain Oportun’s market position and growth projections. Mr. Gutierrez was ultimately unsuccessful in these efforts, thereby focusing Oportun to seek inside financing to continue operations.”
Oportun raised $100 million in venture capital and $250 million in debt during Gutierrez’s tenure as CEO, he said in his statement to American Banker. He added that he left company because he and the board no longer saw eye-to-eye.
“As a young, Latino CEO, building a fintech startup in Silicon Valley was no easy task. There was skepticism about our business model, the communities we were trying to help, and the culture we were trying to build,” Gutierrez said. “Even in this environment, we were able to take a good idea, and build a business around it that is successful to this day.”
In his lawsuit, filed in San Francisco County Superior Court, Gutierrez alleged that Oportun board members had animus for him as a Latino, and he suggested that racial discrimination was a factor in his firing.
Oportun noted in its response that the CEO the company hired immediately after Gutierrez’s termination, Raul Vazquez, is also Latino. The firm said that it prides itself on diversity and inclusion, both in terms of the customers it serves and the people it employs.
“The success of Oportun’s Latino leaders — including Mr. Gutierrez’s successor Mr. Vazquez, who still runs the company today, almost seven years later — confirms the absurdity of Mr. Gutierrez’s accusations of discrimination,” the company stated in its court filing.
Gutierrez’s lawsuit includes one particularly vivid allegation. During a business meeting, David Strohm, an Oportun board member who is a partner at the venture capital firm Greylock Partners, thrust a large knife into a table while yelling and cursing at Gutierrez, according to the complaint.
The knife was described in the lawsuit as a “Rambo” knife — a reference to the weapon brandished by Sylvester Stallone’s character in the eponymous films.
Opportun denied in court papers that any such incident ever occurred. A Greylock spokeswoman declined to comment.
Oportun also went on offense, alleging in its court filing that Gutierrez failed to reimburse the company for personal expenses.
Gutierrez has called that story false and defamatory.
Gutierrez is seeking reimbursement for attorney’s fees that he incurred during class-action litigation brought by Oportun shareholders in 2015. That lawsuit alleged that Oportun’s directors breached their fiduciary duties by orchestrating several rounds of financing — both during and after Gutierrez’s tenure as CEO — in which common shareholders were virtually wiped out.
The class-action lawsuit settled last year for approximately $8.5 million, according to Gutierrez. While he was not directly a beneficiary of the settlement, trusts in his name were, as were some of his family members.
During the 2015 lawsuit, Gutierrez was compelled to turn over documents and sit for four days of depositions, which he says led to substantial legal bills. Oportun maintains that those expenses are not covered by his indemnification agreement because they were incurred in furtherance of his interests as a participant in a recovery from the class-action suit.
The fight between Oportun and Aura, which until recently was known as Insikt, extends beyond the courts.
While Oportun has approximately 300 retail locations in 12 states, Aura has chosen not to operate its own stores. Instead, the latter company offers loans through a network of retail partners, including the money transmission chain DolEx.
By not opening its own retail locations, Aura has been able to control its expenses. But the decision also subjects the company to a different regulatory framework in California — a key market, since it is home to nearly one-quarter of all immigrants living in the United States — than the one under which Oportun operates.
Aura makes loans in California under a pilot program that until recently had a $2,500 cap on loan sizes. Last year, the company successfully lobbied lawmakers in Sacramento to raise the cap to $7,500. The change in state law was widely seen as benefiting a single company: Aura.
The legislative change was opposed by Oportun, which was already allowed to make loans of more than $2,500 under a different statute.
In comments last year, Oportun stated that the existing restraints under state law on the use of so-called finders — which is how Aura’s retail partners are classified — were probably not stringent enough.
“We do not want to see that compounded or made worse,” Oportun stated.