Carta faces allegations of unauthorized use of confidential information

Carta, a prominent $7.4 billion software firm utilized by startups to manage investor records, faces severe allegations suggesting it attempted to trade its customers’ shares without proper consent. The issue arose when Karri Saarinen, co-founder of software startup Linear, reported Carta’s unauthorized outreach to his investors regarding selling Linear shares.

Subsequent revelations uncovered that Carta employees similarly approached investors associated with two other startups without prior consent. This incident triggered concerns about Carta’s use of private information from its platform users to gain advantages in the competitive secondary market for startup stocks.

In response to Saarinen’s complaint, Carta’s CEO, Henry Ward, expressed shock over the incident, attributing it to a possible violation of the company’s policies by a rogue employee. However, Ward later admitted that two additional companies using Carta’s platform had encountered similar unauthorized actions.

Carta primarily aids startups in managing their cap tables, documenting ownership structures, and operates a private share trading platform, acting as an intermediary between startups and investors for private yet liquid transactions.

Ward acknowledged an “internal breach of protocol,” where an employee directly contacted investors without consent, leading to the unauthorized actions. Ward emphasized that this breach goes against their privacy protocols and should not have occurred.

The secondary market for private company stock has gained traction due to a dearth of public listings, and Carta is among several platforms competing in this space. While most Carta users focus on managing their investor base, not all actively seek to sell their shares, intending the two aspects of Carta’s business to function independently.

Saarinen denounced Carta’s actions, asserting that Linear hadn’t organized any sale, and criticized Carta for leveraging private information to approach investors without approval. He voiced concerns about Carta employees potentially accessing company information to initiate unauthorized sales, a practice contradicting company and board approvals.