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Seven former executives of Thrasio have been sued for allegedly propping up a “sham” business in the latest controversy over the failed ecommerce start-up that was backed by private equity groups Advent and Silver Lake.
The collapse last year of the company, which was once valued at $6bn and had bought scores of independent Amazon marketplace businesses, dealt a blow to Advent and Silver Lake.
“Mom and pop” vendors who sold their businesses to the company are also alleged to have lost out because some had not been fully paid for the transactions.
In the lawsuit filed in New Jersey in December, lawyers representing the company’s estate alleged that the executives propped up a “sham” business while touting its consistent profitability.
The lawsuit seeks damages of hundreds of millions of dollars to pay back creditors who the lawyers argue were misled by Thrasio executives. Advent and Silver Lake are not party to the lawsuit.
Thrasio was one of many private equity-backed companies that struggled after the cost of borrowing shot up, and pandemic-era crazes that had fuelled their growth subsided.
The group, founded in 2018, spearheaded a wave of “Amazon aggregators” that grew at a blistering pace to attract more than $16bn in capital, mostly in 2021, according to Marketplace Pulse.
It received $3.4bn in funding, including from Howard Marks’ Oaktree Capital Management, which last year rebuked Advent and Silver Lake over Thrasio’s bankruptcy, saying its trust in the private equity groups had been “misplaced”.
Oaktree blamed the start-up’s demise on executives “mistakenly” believing strong pandemic-era spending would continue and as such “paying more for acquisitions”. It also said Thrasio had expanded too quickly and ordered too much inventory.
Oaktree, which is not a party to the lawsuit, later apologised to the private equity groups for appearing to blame them for its lossmaking investment in the business.
The lawsuit also alleges that some former Thrasio executives illegally forced the business to buy their shares and that managers “never bothered” to integrate the businesses they had purchased, meaning they failed to generate the promised cost savings from the acquisitions.
Thrasio bought 181 businesses between 2019 and 2021 — at least one a week on average — typically by “deferring payment of a substantial portion of the purchase price to the small business owners”, according to the lawsuit.
The result, it is claimed, was “an incredibly inefficient network” of external logistics companies and warehouse agents that Thrasio “lacked the infrastructure to manage or track”, with the company holding more than $800mn of excess inventory by early 2022.
The company’s use of non-standard accounting also allowed its executives to “hide serious accounting irregularities and financial losses” from its investors and lenders, the filing alleged.
The complaint also claimed that co-founders, Joshua Silberstein and Carlos Cashman, illegally extracted money from Thrasio to ensure “they got paid before the inevitable day of reckoning”.
Three days after the company closed a $260mn funding round in 2020, Silberstein and Cashman voted for the board to repurchase up to $160mn of shares in the company, including their own, it is alleged.
The claim said the company ultimately spent $145mn repurchasing the shares when the business was already insolvent. The pair allegedly received $57mn through entities affiliated with them.
Together, Silberstein and Cashman made $319mn from tender offers and secondary sales of their equity in the company, as Thrasio itself was burning through cash, according to the complaint.
Thrasio emerged from bankruptcy last June, with new chief executive Stephanie Fox announcing it had a “clean balance sheet, fresh capital and a renewed focus on our core business of building brands”. Fox has since been replaced.
A report later in June from S&P Global Ratings said the company’s capital structure was “unsustainable” and that it saw a “possible default scenario in the next 12 months”.
Thrasio and Silberstein did not respond to requests for comment. Cashman, Silver Lake, Advent and Oaktree declined to comment.
