Investor Fraud Allegations Lead to Legal Battle at Spartan Micro, Inc.

In September 2022, the United States District Court for the Central District of California reviewed a case involving serious allegations against Spartan Micro, Inc. The plaintiffs, including Mark Dias and several investment entities, brought the lawsuit against Spartan Micro, Inc., and its co-founders, Eric Stoppenhagen and Thomas Gardner, accusing them of fraud, breach of contract, and unjust enrichment.

Background and Dispute

Mark Dias, a co-founder and the purported Chief Technology Officer (CTO) of Spartan Micro, Inc., was instrumental in the development of the company's core intellectual property, particularly the eCoil system. This system, designed for neurovascular medical applications, was critical to Spartan’s fundraising efforts. In early 2019, investment entities became interested in Spartan after the company received FDA clearance for the eCoil system.

During the negotiations, the investment entities relied on a Private Placement Memorandum (PPM) provided by Spartan, which included details about the company’s operations and facilities. However, the plaintiffs later alleged that this PPM was misleading. Specifically, they claimed that Spartan’s Fremont facility had been shuttered and key employees, including Dias, had been laid off—information that was not disclosed during the investment discussions.

Stock Purchase Agreement and Subsequent Events

In August 2020, the parties executed a Stock Purchase Agreement (SPA) in which the investment entities agreed to invest at least $5 million in Spartan. The SPA included representations that Spartan’s research and development activities met specific standards and that Dias was overseeing these activities. However, it was later revealed that Eric Stoppenhagen had taken over these responsibilities, conducting activities at Spartan’s Tustin office in a manner that allegedly jeopardized the company’s certification for its safety and quality management system.

Following the execution of the SPA, the investment entities became shareholders in Spartan. As part of their agreement, the company’s Articles of Incorporation were amended to create two classes of preferred shares and to allow the investment entities to appoint directors to Spartan’s board. Despite these agreements, tensions between Dias and Stoppenhagen escalated, leading to Dias being removed from his administrative roles and, eventually, fired as CTO.

Legal Actions and Allegations

In 2021, further disputes arose when Stoppenhagen circulated a memorandum indicating that Dias had been replaced as a director by Thomas Gardner. The plaintiffs allege that this action was unauthorized and violated the SPA and related agreements. Despite requests for corporate documents related to these actions, Stoppenhagen refused to provide the information.

Dias and the other plaintiffs subsequently filed a lawsuit against Spartan Micro, Inc., raising multiple causes of action, including securities fraud, breach of fiduciary duty, and breach of contract. They argued that Stoppenhagen’s actions not only breached the agreements but also deprived the investment entities of the benefits they were entitled to under the SPA.

Court's Ruling

In its ruling, the court dismissed several of the claims against Thomas Gardner due to insufficient allegations. The court found that the plaintiffs failed to establish that Gardner was contractually obligated to the terms of the agreements. However, the court allowed the plaintiffs to amend their complaint to address these deficiencies. Additionally, the court dismissed the unjust enrichment claim with prejudice, as California law does not recognize unjust enrichment as a standalone cause of action.

The case continues to develop as the plaintiffs pursue their claims related to the alleged fraud, breach of contract, and corporate governance issues within Spartan Micro, Inc.