‘Probably illegal’: B.C. judge blasts tech company founders for ‘breathtaking’ entitlement

The Vancouver office of airG is seen in this photo from the company's website. (corp.airg.com / Upper Left Photography)

When Frederick Ghahramani and his co-founder Vincent Yen set out to modify their ongoing business relationship in 2015, they agreed to evenly split the proceeds of three “shady” deals.

That adjective is not one imposed retroactively by the B.C. Supreme Court judge who ruled on a dispute between the two men this week. “Shady deals” was the title of that section of the agreement.

Ghahramani and Yen were – and remain, according to Justice Jasvinder S. Basran’s 74-page decision issued Monday – the two largest shareholders of Vancouver mobile phone software developer airG.

The men were in court to deal with claims and counterclaims arising from Ghahramani’s acquisition of additional voting shares, which he used to remove Yen as a director of the company in March 2021.

Basran dismissed all of Yen’s claims and many of Ghahramani’s counterclaims, but not before chastising both men for the way they ran the company over the years.

“The evidence clearly establishes that Mr. Ghahramani and Mr. Yen operated airG dishonestly,” reads the credibility section of Basran’s decision.

“They treated airG as their own personal banking machine from which they withdrew funds with blatant disregard for their fiduciary and legal obligations to the company and for airG’s obligations to other shareholders, employees, and stakeholders. Their level of entitlement was breathtaking. They convinced themselves that they were ‘extra special shareholders’ and, accordingly, could act with impunity.”

Company history

According to Basran’s decision, Ghahramani and Yen met in the late 1990s when they were both studying engineering at Simon Fraser University.

They became friends and went into business together in an effort to monetize a school project they had worked on.

The company that would become airG began in 2000, when the pair shared “a demo link with a number of mobile games they had developed” with Telus, which then inadvertently launched it to all of its customers, according to the decision.

“Virtually overnight, Mr. Yen and Mr. Ghahramani’s mobile games site went from zero to 50,000 clicks per day,” the decision reads.

A third classmate, Bryce Pasechnik, joined the operation, and the three men became equal shareholders of airG, an arrangement that persisted until August 2004, when Yen and Ghahramani bought out his share of the company and distributed it evenly between themselves.

The decision indicates the founders brought in some angel investors, but retained control of the vast majority of the company’s shares.

On various occasions between 2011 and 2020, Yen and Ghahramani conducted buy-backs of angel investors’ shares, always in precisely equal amounts, keeping their ownership stakes in the company equal, according to the decision.

While their holdings remained equal, however, the co-founders’ responsibilities within the company did not.

‘Shady Deals’

Ghahramani took a sabbatical from December 2009 through June 2012, leaving Yen in charge of running the company during that time. Basran’s decision indicates the pair’s relationship had “soured” by the time the sabbatical started.

When Ghahramani returned, he “took over operational and strategic control of airG,” the decision reads. “The parties agreed that they could not work together, so Mr. Yen stepped away from airG’s day-to-day functions.”

The two men signed an agreement regarding their continued business relationship. Even though Yen would no longer be involved in running the company on a daily basis, both he and Ghahramani would each receive annual salaries of $250,000 and be allowed to expense $4,000 per month on their airG credit cards.

In 2015, they revised the agreement, increasing Ghahramani’s salary to $500,000 and decreasing Yen’s to $100,000. They each continued to be allowed to submit personal expenses on their company credit cards, though the total was reduced to $24,000 per year, according to the court decision.

The 2015 agreement also “required each party to record their personal expenses in a way that would maximize airG’s ability to pass a CRA audit” and “stated Mr. Yen and Mr. Ghahramani agreed to divide the proceeds of three enumerated ‘shady’ deals 50-50.”

“This term was included in a section entitled ‘Shady Deals,’” the decision reads.

The decision also quotes an email from Ghahramani to Yen in which the terms of the agreement were discussed.

“We are negotiating how to *continue* f***ing the minorities and cra under our current ‘partnership’ that we’ve arranged as special shareholders,” the email reads, in part, as quoted in the decision.

Finally, the 2015 agreement created a “year-end bonus” structure, which called for bonuses to be split evenly between the two men if the total amount was less than $3 million, with Yen’s share declining as the total amount grew over $3 million.

“This end of year bonus was not disclosed to other shareholders,” Basran’s decision reads.

“Mr. Yen and Mr. Ghahramani justified this bonus by conceptualizing themselves as ‘extra special shareholders.’ The bonus amounts were calculated, in part, to keep airG’s profit under the small business limit and to qualify for certain tax credits.”

All the while, airG was growing more successful and profitable. By 2020, according to Basran’s decision, the company’s revenue had grown to more than $63 million.

Today, airG’s website lists partnerships with the NBA and the mixed martial arts Professional Fighters League, as well as “games, social media and self-care apps,” as part of its portfolio.

“From 2012 to 2019, between bonuses and the parties’ base salaries, Mr. Yen received approximately $12 million in compensation and Mr. Ghahramani received $15 million,” the decision reads.

Yen’s lawsuit

Basran’s decision describes airG’s 2020 fiscal year as “a tipping point” in the relationship between the company’s founders. The massive increase in revenue meant the year-end bonus would be more than $3 million for the first time, and the two men could not agree on how to interpret their 2015 agreement and decide how much each would get.

In early 2021, both Yen and Ghahramani began approaching airG’s angel investors with an eye toward acquiring additional shares in the company, according to the decision.

Ghahramani was the first to reach an agreement to purchase extra shares, and in March 2021, he called a special shareholder meeting to remove Yen from the board of directors and replace him with Rajesh Bhangu, the company’s vice-president of business development.

His effort was successful, and the decision indicates Yen told those present at the meeting that if he were removed as a director, he would commence litigation. He did so in January 2022.

Yen’s lawsuit alleged that there was an equal share ownership agreement between himself and Ghahramani, that he was entitled to a permanent directorship with airG, and that Ghahramani had engaged in conduct that amounted to “oppression” under the Canada Business Corporations Act.

Yen also asked the court to liquidate and dissolve airG, a request shareholders are entitled to make under a different section of the act.

Basran dismissed all of Yen’s claims, finding that he was not a credible or reliable witness and rejecting his version of events except where it was “corroborated by documentary or other independent evidence.”

“One of the illicit practices Mr. Yen and Mr. Ghahramani engaged in was that they created phony invoices payable to offshore third parties, in exchange for bags of cash,” the decision reads, giving an example of both the men’s questionable business practices and Yen’s unreliability as a witness.

“AirG paid these invoices to the offshore third parties, who, in turn, delivered bags of cash to the airG offices for Mr. Yen and Mr. Ghahramani. During Mr. Yen’s examination for discovery, he denied setting up these deals with the third parties, but email and text correspondence show that he did. At trial, Mr. Yen unconvincingly testified that he simply forgot about negotiating with these third parties for bags of cash.”

Ghahramani’s counterclaim

In assessing the men’s credibility, Basran noted that both Ghahramani and Yen had “engaged in highly questionable, and probably illegal, business practices, including bribing client officials, lying to the Canada Revenue Agency (‘CRA’) about their incomes, and falsifying invoices in order to obtain large amounts of cash.”

“They knew they were engaging in illegal conduct and took steps to avoid detection,” the decision reads.

Despite this, the judge found Ghahramani’s testimony to be “generally credible, albeit occasionally obtuse and self-serving.”

The decision notes that since ousting Yen from the board of directors, Ghahramani has taken “a series of steps that regularized and normalized airG’s business operations.”

“He retained external compensation consultants and complied with their recommendations. He also brought in external directors who now function as directors alongside himself and Mr. Bhangu. I cannot comment on airG’s adherence to its other legal obligations, but these actions align with those of a properly run company,” the decision reads.

However, the decision also notes that Ghahramani’s email correspondence with Yen employed language that was “vile, insulting, abusive, and occasionally threatening.” In one instance, the decision quotes an email from Ghahramani to Bhangu in which he referred to his business partner using a racial slur.

“Bring me chess books in prison when I murder that c***k,” the decision reads, quoting from the email.

Ghahramani’s counterclaim focused on allegations that Yen had improperly charged personal expenses to airG and used a different company he founded – an online learning platform and app called StudyPug – to compete with airG.

Basran ruled that StudyPug was not a competitor of airG because the two companies offered different products and had different clients. However, StudyPug was unjustly enriched by a total of $58,335, an amount corresponding to the cost of rental space and office equipment that Yen improperly charged to airG for StudyPug’s benefit.

While many of the alleged improper charges in the counterclaim were dismissed because the action commenced after the statute of limitations had expired, the unjust enrichment claim against StudyPug was allowed because it only became knowable once the litigation began, according to Basran’s decision.

The judge also allowed counterclaims for improper expenses Yen charged to airG after March 7, 2019, an amount that worked out to $82,871.

Accordingly, Basran ordered StudyPug to pay airG $58,335 and ordered Yen and one of his companies to pay airG $82,871. The judge noted that Ghahramani is not personally entitled to relief for expenses charged to and paid by airG. Only the company, not its managing director, is entitled to the damages.

The remaining counterclaims were dismissed and the judge invited the parties to make submissions about court costs.

CTV News contacted both Ghahramani and Yen for comment via emails to airG and StudyPug, respectively, but has not yet received a response from either man or his company. This story will be updated if responses are received.