Things may not have been as they appeared on the surface when Sequoia Financial Group (ASX: SEQ) acquired three media businesses in 2022 before an internal matter entered the public space via former employee Tim McGowen, who is now being sued by Sequoia to the tune of $3.5 million. 

Sequoia has commenced legal action against McGowen, initiating proceedings in the Supreme Court of Victoria. 

The lawsuit continues an ongoing dispute between Sequoia and McGowen who first joined Sequoia in March 2022 after his businesses The Informed Investor, ShareCafe, and Corporate Connect Research were acquired by Sequoia for $5.1 million. 

An initial payment of $3m made up of $1.1m cash and 2.72 million SEQ shares (valued at 70 cents each) per share, plus a deferred payment of a further 3.2 million shares to be issued after February 2023, subject to achievement of performance hurdles. 

According to Sequoia’s allegations, McGowen has breached several warranties and provisions outlined in the Share Purchase Deed. As a consequence, Sequoia is seeking damages amounting to approximately $3,500,000.

At the time, the acquisition aimed to bolster Sequoia’s Direct Division and enhance its media, research, adviser support, and technology platforms.

However, relations between McGowen and Sequoia soured over time, leading to a dispute over earnout payments owed to McGowen and other staff members, going public via LinkedIn. 

The dispute escalated after Sequoia declined to release 3.2 million shares due to McGowen and several other staff members in February 2023, citing a failure to meet gross revenue earnout targets. Despite Sequoia’s offer of 40% of the disputed payments, the situation deteriorated, leading to further departures, misconduct allegations, and internal discord.

Sequoia’s CEO, Garry Crole, refrained from commenting publicly on the dispute but confirmed Paul Sanger’s appointment as the new leader of ShareCafe. Despite the tumultuous union, Sequoia remains committed to its acquisitive business model, as evidenced by its recent announcement of the acquisition and merger of legal services business Castle Corporate.

Sequoia has confirmed that its anticipated FY24 EBITDA is expected to be at least $10 million, which would represent growth of 117% on FY23 after adjusting for the impact of the now divested Morrison Securities business. 

In addition to providing reconfirmed EBITDA guidance for FY24, Sequoia has also provided revenue guidance for $130m. This implies revenue growth of 33% for FY24.