Vulcan backs out of the planned $300 million DATEK investment.
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(Courtesy:Industry Standard via IDG)
Vulcan Ditches Datek
By Megan Barnett
Vulcan Ventures, the investment firm owned by Microsoft cofounder Paul Allen, has backed out of its planned investment in Internet brokerage Datek Online. In late May, the Bellevue, Wash.-based VC firm announced that it would participate in a $300-million private-placement investment in Datek, along with Boston-based TA Associates and Group Arnault of France. TA Associates and Group Arnault on Tuesday completed their investments in Datek, which now total $195 million.
According to a report by the New York Times, the venture firm cited due-diligence problems as the impetus for the pullout. Neither Vulcan nor Datek returned calls by press time.
Datek has a history of Securities and Exchange Commission investigations. In 1995, the New Jersey-based firm, then called Datek Securities, was forced to cease its IPO plans due to an alleged SEC inquiry into the firm's trading operations. Most recently, just one week before the $300 million investment was announced, the company settled a dispute with the SEC over claims of misuse of customer funds, an alleged violation that was uncovered during an audit last summer. Datek agreed to pay the SEC $50,000 and to hire an independent financial consultant to review its newly implemented accounting procedures.
In addition to its retreat from Datek, Vulcan pulled out of a separate, planned, $25-million investment in Island, an alternative trading network owned in majority by Datek Online. In a new deal, TA Associates and Group Arnault agreed to invest $30 million in the company. The original $300-million investment in Datek did not include funds for Island.
"We couldn't come to terms," said Matt Andresen, president of Island, of the disintegration of its deal with Vulcan. He wouldn't comment on the significance of Datek's SEC troubles, or on the due diligence that Vulcan performed on his firm as a separate entity from Datek. Andresen appeared unfazed by the cancellation of the deal. "We are being cornered by a lot of different people. I don't know if $25 million really counts that much anyway," he said.
Datek has restructured its business model and brought in new executives over the last couple of years in an attempt to put its troubles behind it. The company had planned to use the funds for a marketing campaign, in addition to investments in international business and technology infrastructure.
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