Modern Health co-founder sues company, claims kickbacks

The ousted co-founder of a Kleiner Perkins-backed startup claims that the company — which sells mental health services as an employee benefit — bribed and lied to prospective customers, according to a lawsuit filed in San Francisco Superior Court.

Why it matters: The allegations, denied in their entirety by defendant Modern Health and its CEO, dispute the honesty of those providing support to employees of such major companies as Netflix.

The plaintiff is Erica Johnson, a neurobiology researcher and engineer who co-founded Modern Health in 2017 with Alyson Friedensohn, but was later fired.

• Johnson filed suit against both Modern Health and Friedensohn for breach of contract, wrongful termination, relation, and defamation.
• She alleges that Friedensohn gave stock to agents of prospective customers as a bribe to get business — and repeatedly asked Modern Health employees to lie to prospective customers about key aspects of the company's business (e.g., the size of its network, services, and regulatory compliance).
• Her allegations are largely mirrored in a second lawsuit filed against Modern Health and Friedensohn, by a small venture capital firm led by two former executives at LinkedIn (where Johnson's husband also used to work).

Yes, but: The complaint is explosive, but does not include any emails, affidavits, or other supporting evidence. When contacted by Axios, Johnson's attorney declined to provide additional information, and neither Johnson herself nor C3 Ventures responded to our inquiries.

Modern Health and its attorney emphatically deny all the allegations, including the equity kickbacks, as does a current company employee whom Johnson's lawsuit claims was instructed to lie. The company also has re-upped several of its large customers, which may raise doubts over claims that it misrepresented its capabilities.

Modern Health has not yet filed a legal response, although is required to do so by month's end (unless the two sides enter arbitration). In a statement to Axios, Modern Health says:

“It’s unfortunate that a former employee and a couple of her friends would bring such meritless claims, whose only purpose is to try and distract the company from its mission of improving access to critical mental health care resources.”

The big picture: Silicon Valley is known for encouraging startups to “move fast and break things." But, in recent years, companies have come under stricter scrutiny, particularly in highly-regulated industries like healthcare where rule-breaking can have severe consequences for the end-user.

• Go deeper: Erica Johnson's complaint is below: