Engineering A $1.14M Settlement From $233K ClawBack Attempt
In Q3 2025, we were retained by an employee facing pre-textual termination and an attempted clawback of vested equity valued at approximately $233,000 — just 72 hours before the company’s $10 million merger was scheduled to close.
Within hours, we conducted a full cap table and governance review, drafted a TRO, prepared a Motion for Declaratory Judgment, and structured a Standstill Agreement strategy designed to introduce immediate pre-closing risk and trigger disclosure obligations.
By design, the prepared filings were intended to calcify the decision matrix — each instrument forcing a choice between undesirable outcomes. The TRO threatened to enjoin the merger from closing entirely (a result we hoped to not employ). The Motion for Declaratory Judgment would further expose the CEO’s conduct in the public domain and require public acknowledgment of our client's rights, jeopardizing the merger. The Standstill Agreement, which contained a written acknowledgment from the CEO of cap table irregularities was drafted to create an immediate disclosure obligation — placing the CEO in a binary position: disclose the crisis to the Board of Directors ("Board"), risk transaction instability and future litigation exposure, or resolve the equity defect quietly pre-closing.
Through his lawyers, the CEO offered $250,000 for the shares. We declined. When the offer increased to $500,000, we declined again and instead declared our intent to mobilize the TRO, Motion for Declaratory Judgment, and Standstill Agreement.
In life and in law, reason is seldom effective on its own unless tied to self-preservation. To ensure a favorable outcome, we signaled that the cost of noncompliance was significantly greater than the price of compliance. Reprice the risk and force a decision on weighted terms.
A day later, we were alerted to the news that the CEO was meeting with the Board to discuss awarding the client 1,000,000 shares (cash value of $1,140,000 million) — shares to which he was originally entitled to but for the CEO’s ad hoc attempt. A day later, the shares were issued; the merger closed; and a millionaire was minted.
Timing was critical to ensuring that we meet our goal of securing an agreement before Sunday PM. By mirroring the transaction timeline, we were positioned to introduce risk at structural points that would have the greatest impact on diligence and reps and warranties, requiring immediate triaging and escalation before derailing the merger beyond repair. For example, awarding additional shares required board approval and because our internal non-negotiable was either issuance of actual shares or written acknowledgement of ownership, we had to raise the issue to allow any board meeting to be convened over the weekend with built in buffer for negotiations. We had to also anticipate that the CEO may attempt to maneuver around pre-payment, disclosure, or board approval which is why the Standstill Agreement was instrumental to ensuring our interests remained aligned.
Post-closing, leverage would have shifted decisively toward the company with delay and legal fees consuming any meaningful recovery. Pre-closing, the risk vector ran in the opposite direction but with important caveats: strike too early and awaken the behemoth and its army of big firm lawyers ready to neutralize our tactics. But strike too late and risk losing everything—no pre-merger settlement, no documented ownership, and no rights to pursue post-merger, against a newly formed entity with resources and time on their side.
