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Former CareSync executives, board members face lawsuit

Margie Manning

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Photo credit: http://www.weisspaarz.com

The financial advisor appointed by CareSync to wind down the Tampa company and liquidate its assets has gone to court against former executives and members of the board of directors of the now-defunct health technology firm.

The former officers and directors breached their fiduciary duty to the company and to its creditors, the financial advisor, Joseph Luzinski, said in a lawsuit filed Feb. 7 in Hillsborough County Circuit Court.

The lawsuit said the former officers failed to impose sufficient internal controls over CareSync’s financial and business operations, burdened the company with additional debt, and failed to act quickly enough to deal with the problems or make needed changes to management. The former directors failed to require the management to impose internal controls, allowed the company to keep incurring debt, and didn’t make needed management changes in a reasonable time frame, the lawsuit said.

Luzinski is asking for an unspecified amount of damages against each of the individuals named in the lawsuit.

None of the officers or directors named in the lawsuit had filed a response in court by Feb. 27. Neither former CEO Travis Bond, who co-founded a predecessor to CareSync in 2011, nor Robert Crutchfield, who was interim CEO when the company closed, returned calls for comment.

CareSync provided software and services for chronic disease management and was a fast-growing company that had raised as much as $50 million to develop its technology platform before it abruptly closed in June 2018. When it closed, 292 workers lost their jobs, including 167 people at the Tampa headquarters.

CareSync’s officers and directors “were perpetually focused on the next shiny object and capital raise, while failing to correct fundamental organizational problems,” according to the lawsuit.

The suit traced the company’s history and the pivots in its business model, and detailed customer and revenue projections that the suit said fell short of reality.

“Despite operating for seven years, CSI [CareSync] was perpetually run as a startup, with a failure to focus on revenues, budgeting or making necessary cuts in spending … Despite growth in revenue, CSI’s prodigious spending, lack of direction, and inability to get control of its operating expenses caused it to lose money year after year until it collapsed altogether in  2018,” the lawsuit said.

The officers failed to put policies in place to control spending, and adapt to the financial reality of forecasted sales and revenue falling short of expectations, the lawsuit said.

And, despite what the lawsuit called a “prolific disconnect between projections and reality,” the board of directors continued to approve capital raises, “digging CSI further and further into a hole without a reasonable plan to repay CSI’s creditors or investors,” the suit said. Board members primarily were representatives of funds and companies that had invested in CareSync.

In a section of the lawsuit labeled “too little, too late,” Luzinski detailed the final days of the company. In April 2018, the board of directors removed Bond as chairman and CEO. Robert Crutchfield, who represented CareSync investor Harbert Venture Partners III LP, took over as CEO, and launched a restructuring plan.  On June 17, 2018, Bill Smith, the founder of grocery delivery service Shipt, agreed to loan CareSync $1 million. On June 18, Smith publicly announced he was buying the company. But on June 19, Smith abruptly pulled out of the deal, even at a $1 purchase price, the lawsuit said. The company ceased operations on June 21.

In July 2018, Luzinski, senior managing director of Development Specialists Inc., was named the assignee for the benefit of creditors in a process that’s an alternative to a Chapter 7 bankruptcy liquidation. About six months later, in January 2019, he sold CareSync’s technology to Vatica Health, based in Nashville, Tennessee, for $1 million.

When he took on the case, there were 101 separate claims totaling $16.8 million against CareSync, Luzinski said in a report filed in Hillsborough County on Jan. 27. As of Dec. 31, he had reduced the liabilities by just over $1 million. The claims review and objection process remains ongoing, and Luzinski said he intends to finalize the process in the first half of this year.

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