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Richard C. Vasquez, CSB# 127228 Eric W. Benisek, CSB# 209520 Steve Steinberg, CSB# 230656 Vasquez Benisek & Lindgren 3685 Mt. Diablo Blvd., Ste. 300 Lafayette, CA 94549 (925) 627-4250 (tel) (925) 403-0900 (fax) rvasquez@vbllaw.com ebenisek@vbllaw.com ssteinberg@vbllaw.com Counsel for Plaintiffs MBX Holdings, LP, Michael Jackson, Hecker Consultancy, LLC, and SV Angel, LLC SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO

MXB Holdings, LP, a Delaware limited partnership, Michael Jackson, an individual, Hecker Consultancy, a Delaware limited liability company, and SV Angel, LLC, a Delaware limited liability company, in the Right of and for the Benefit of Bebo, Inc. Plaintiffs, v. Adam Levin, an individual, Criterion Capital Partners, LLC, a Delaware limited liability company; Tristen Lazareff, an individual, and DOES 1-10, inclusive, Defendants.

Case No.: DERIVATIVE COMPLAINT 1) BREACH OF FIDUCIARY DUTIES 2) ABUSE OF CONTROL 3) GROSS MISMANAGEMENT 4) WASTE OF CORPORATE ASSETS 5) UNJUST ENRICHMENT 6) RECEIVERSHIP 7) ACCOUNTING DEMAND FOR JURY TRIAL Case Filed: March 5, 2012

and BEBO, Inc. Nominal Defendant

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Plaintiffs MXB Holdings, LP, Michael Jackson, Hecker Consultancy, LLC and SV Angel, LLC (collectively, Plaintiffs) allege as follows: THE PARTIES 1. Plaintiff MXB Holdings, LP, is a Delaware limited partnership and has been a

shareholder in nominal defendant, Bebo, Inc., since 2010. 2. Plaintiff Michael Jackson is an individual and has been a shareholder in nominal

defendant, Bebo, Inc., since 2010. 3. Plaintiff Hecker Consultancy, LLC is a Delaware limited liability company and

has been a shareholder in nominal defendant, Bebo, Inc., since June 2010. 4. Plaintiff SV Angel, LLC is a Delaware limited liability company and has been a

shareholder in nominal defendants, Bebo, Inc. since 2010. 5. Defendant Adam Levin (Levin) is majority owner of defendant Criterion

Capital Partners, LLC and has been the chief executive officer and director of Bebo since June 2010. 6. Defendant Criterion Capital Partners, LLC (Criterion), has been the majority

stockholder in Bebo since June 2010. 7. Defendant Tristen Lazareff (Lazareff) is a member of the Board of Directors for

Bebo and also the Director of Business Affairs at Bebo and Criterion since June 2010. 8. Nominal defendant, Bebo, Inc. was a Delaware corporation. In 2008, Bebo was

the third largest social networking website in the United States. In March 2008, AOL, Inc. acquired Bebo for $850 million. In June 2010, Criterion Capital Partners, LLC, led by Levin and Levins father, Paul Abramowitz, acquired the assets of Bebo from AOL though the entity Buckaroo Acquisition Corp., a Delaware corporation (Buckaroo). Buckaroo continued to operate the Bebo website, and in the Fall 2011, Buckaroo changed its name to Bebo (hereinafter, Bebo or the Company). 9. Defendants Does 1 through 10, inclusive, are the fictitious names of those

Defendants whose true names are unknown to Plaintiffs, and whose true capacities, whether as individuals, corporations, partnerships, joint ventures and/or associations, are also unknown to 2
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Plaintiffs, and when such true names are ascertained, Plaintiffs will amend this complaint by inserting said true names in the place of said fictitious names in accordance with the Code of Civil Procedure Section 474. Plaintiffs are informed and believe and thereon allege that whenever and wherever in this complaint any Defendants are the subject of any charging allegations by Plaintiffs, said Does are also responsible in some manner for the events and happenings alleged herein, and it shall be deemed that said Doe Defendants, and each of them, are likewise the subject of said charging allegations herein by Plaintiffs. 10. Plaintiffs are informed and believe and thereon allege that at all times herein

mentioned Defendants Does 1 through 10 were the agents, servants and employees of their codefendants and in doing the things hereinafter mentioned were acting in the scope of their authority as such agents, servants, and employees with permission and consent from their codefendants. JURISDICTION AND VENUE 11. Defendants are engaged in intrastate commerce and distribute, sell, and market

the social networking services of nominal defendants, Bebo, throughout California. These activities represent a regular, continuous, and substantial flow of intrastate commerce and, therefore, have a substantial effect on intrastate commerce in California. Most, if not all, of the alleged acts herein occurred in California. 12. Nominal defendant, Bebo has been headquartered in San Francisco County during

most, if not all, of the alleged acts herein, and plaintiff MXB Holdings, L.P. is headquartered in San Francisco County. Many of the alleged acts herein occurred in San Francisco County. BACKGROUND 13. Nominal defendant, Bebo, is a social networking website. Bebo was founded by

Michael Birch and his wife Xochi Birch in January 2005 at their home in San Francisco, California. Mr. Birch is the majority stake holder in Plaintiff MXB Holdings. 14. Bebo was launched to the public in July 2005. Users receive a personal profile

page where they can post blogs, photographs, music, videos and questionnaires to which other users may answer. Additionally, users may add others as friends and send them messages, and 3
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update their personal profiles to notify friends about themselves. Bebo is similar to other social networking sites such as Facebook. 15. Bebo was acquired by AOL on March 13, 2008 for $850 million. AOL was

unwilling to invest and continue developing Bebo so that it could remain competitive with Facebook. And in April 2010, AOL announced it was planning to sell or shut down Bebo. On June 17, 2010, AOL sold Bebo to defendant Criterion. GENERAL ALLEGATIONS The Unanswered Lawsuits. 16. Since taking over Bebo, the Defendants business strategy with respect to

handling lawsuits is to ignore them and allow plaintiffs to take defaults against the Company. The strategy has been repeated many times and threatens to destroy the Company. Walker Digital Media, LLC v. Buckaroo Acquisition Corp (dba Bebo) 17. On April 4, 2011, Walker Digital Media, LLC (Walker) sued Bebo and other

defendants in the United States District Court for the District of Delaware for infringement of U.S. Patent Nos. 5,884,270 and 5,884,272. Exhibit A (Complaint). Bebo was properly served but failed to answer the complaint. On June 29, 2011, Walker requested that a default be entered against Bebo. On July 19, 2011, the clerk for the District court entered Bebos default. Exhibit B (Entry of Default). Bebo now stands barred from contesting liability and damages in this lawsuit. Sapiro v. Buckaroo Acquisition Corp. (dba Bebo) 18. On December 15, 2011, Jeff Sapiro, a former Network Engineer for Bebo, sued in

San Francisco County Superior Court for breach of contract. Exhibit C. Defendants failed to timely answer the complaint. Id. On January 27, 2012, Sapiro moved for entry of default. Id. Cardillo v. Bebo, Inc., et al. 19. On September 15, 2011, John Cardillo sued Bebo and other defendants for breach

of contract. Exhibit D. Almost four months later, Bebo has failed to answer, and Cardillo will likely take Bebos default.

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Bebos Eviction From Its Corporate Headquarters 20. Bebo maintained its corporate headquarters at 425 Bush Street, Suite 200, San

Francisco, CA 94108. Defendants still advertise on Bebos website that the companys headquarters is 425 Bush Street. 1 However, Defendants allowed Bebo to go into default on its lease. The Company was subsequently evicted and now remains liable for the balance of the lease. Defendants have since moved Bebos operations to Los Angeles and consolidated the Company under the same roof as Criterion where many employees are shared between Criterion and Bebo as described herein. 21. Defendants never explained in advance to the Board, the shareholder, or the Bebo

employees the status of the lease arrangement, nor did Defendants seek approval from the Board and/or shareholders to allow Bebo to go into default on the lease and subsequently be evicted from its headquarters. 22. Bebos eviction has reflected negatively on the Company and its business

prospects, damaged the Companys reputation, and exposed the Company to unnecessary liability. Criterions Exploit of Bebo 23. Since becoming the majority shareholder of Bebo, Defendants have used the

opportunity to install Criterion employees as Bebo officers, and use Bebos assets to pay their salaries. Indeed, several of Criterion director level employees are also now directors at Bebo. For example, Defendants installed Criterions Director of Business Affairs, Tristen Lazareff, as Bebos Director of Business Affairs and member of the Board of Directors. Defendants also installed Criterions Director of Development, Scott Messer, as Bebos Director of Business Development. And finally, defendant Levin, who had absolutely no experience running so social networking company, installed himself as Bebos Chief Executive Officer while he also served as Criterions Managing Director. 24. On information and belief, Defendants have used Bebos operating capital to pay

See, e.g., http://www.bebo.com/c/about 5

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the salaries of the defendant Criterions staff. For example, defendant Criterion has avoided paying Lazareff and Messer market salaries from Criterion instead shifting the burden to Bebo. Defendant Levin paid himself a base salary of at least $14,000 per month as Bebos CEO. Even more troubling is defendant Levin, the self-appointed CEO of the Company, would almost never show-up at Bebos office, instead tending to his other obligations for defendant Criterion in Los Angeles. Levin has not dedicated sufficient time and energy to the operation of Bebo consistent with an officer of his level and someone who receives a $14,000 per month salary. 25. On information and belief, after relocating Bebos operations to inside Criterion,

Defendants have caused Bebo to pay for rent and services provided through Criterion at rates that are not fair to Bebo, or the subject of arms-length negotiation between Bebo and Defendants. Moreover, on information and belief, Criterion has charged Bebo management fees and other fees that are not arms-length, market-based and/or fair to Bebo. Moreover, none of the intercompany transactions between Bebo and Criterion have been submitted to a disinterested Board for approval and authorization, or the shareholders more generally for approval. Absence of Corporate Formalities 26. Defendants have operated Bebo for 20 months and have failed to hold a single

board meeting or shareholder meeting. None of Defendants decisions have been presented to a disinterested Board through regularly noticed Board meetings, or to the shareholders through regularly noticed shareholder meetings. This includes, and is not limited to, Defendants officer and director level hiring decisions, Defendants decision to allow Bebo to default on its lease and relocate the corporate headquarters into defendant Criterions office space and allocation of certain Criterion expenses to Bebo, Criterions charging of fees to Bebo, Defendants decisions to not answer a single lawsuit filed against the Company, and Defendants decision to pass on opportunities to sell the Company and realize shareholder value. 27. In summary, none of the Companys material corporate decisions have been voted

on and authorized by the Companys Board of Directors, or the Companys shareholders. Nor have any of the Companys transactions with Criterion been presented to a disinterested Board for consideration and approval. 6
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Shutdown of the Bebo Website 28. On Monday, January 30, 2012, the Bebo website crashed and was off-line for

over a day. During the extended downtime it was reported by several news outlets that Bebo had shut down operations and gone out of business. 29. The event was publicized on the TechCrunch website, and is now mentioned in

Wikipedias discussion of Bebo. Not until Wednesday, February 1, 2012 did defendant Levin issue a statement explaining that technical problems caused the crash. 30. The Bebo website failure underscores the Defendants gross mismanagement of

the Company. Few things can damage a social networking websites business and reputation more than being knocked offline for extended periods. Withholding of Corporate Information from Shareholders 31. Plaintiffs and other shareholders have attempted to obtain general information

from Bebo with respect to its operations and financial, and at each turn, their requests have been denied by Defendants. 32. Shareholders and directors are afforded the right under Delaware General

Corporation Law (DGCL), Section 220, to inspect the Companys books and records. Plaintiffs have made several requests for books and records informally and formally under Section 220. In each instance, Defendants have refused to turn over any of the requested information in breach of their fiduciary duties and DGCL Section 220. 33. Moreover, Defendants have failed to obtain audited financials for Bebo, despite

repeated claims the accountants have been working on producing audited financials. Defendants Material Misrepresentations To Prospective Purchasers 34. Defendant Levin has also lied to prospective purchasers regarding the business

status and health of Bebo. 35. For example, in business discussions between Greg Tseng of Tagged, Inc., and

defendant Levin, on behalf of Bebo, Levin misrepresented Bebos revenues and employees to make Bebo appear more successful and appealing. 36.
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Levins misrepresentations damage Bebos stature and reputation because the 7

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Companys executives are perceived as shady and untrustworthy. Moreover, each time a potential acquirer became more interested in Bebo, and requested financials, Levin refused to provide this basic information, all but guaranteeing the prospective buyer would go away. Derivative Allegations 37. Plaintiffs bring this action derivatively in the right and for the benefit of nominal

defendant, Bebo, to redress injuries suffered, and to be suffered, by Bebo as a direct result of the breaches of fiduciary duty, abuse of control, gross mismanagement, waste of assets, and unjust enrichment by Defendants. 38. Plaintiffs have been shareholders in Bebo since 2010 through the present,

including at all times material to this complaint. 39. Plaintiffs did not make a pre-suit demand on Bebo because such a demand would

be futile, wasteful and useless act because Levin and Criterion are the majority shareholders and controlling shareholders of Bebo. 40. Defendants are aware of, and have directly benefited from, the wrongs alleged

herein. The Defendants participated in, approved, and/or permitted the wrongs alleged herein to have occurred. 41. In order to bring this suit, Levin and Criterion would be forced to sue each other

and themselves, which they will not do. Any suit would expose Defendants to legal liability, thus Defendants are hopelessly conflicted in making any supposedly independent determinations whether to sue themselves. For these reasons the demand on Bebos board which has to be made to Defendants, was and is futile. 42. Defendants Levin and Criterion have be informed in writing of the ultimate facts

alleged herein. Prior to filing this complaint, Plaintiffs provided Defendants a true and correct copy of this pleading for their consideration. FIRST CAUSE OF ACTION (Breach of Fiduciary Duties Against all Defendants) 43. Plaintiffs reallege and incorporate by reference Paragraphs 1 through 42 inclusive,

as though fully set forth in this First Cause of Action. 8


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44.

Defendants owe fiduciary duties of care and loyalty to nominal defendants,

Bebo. Defendant Levin is the Chief Executive Officer of Bebo, and defendant Criterion is the majority shareholder, and holds a spot on Bebos Board of Directors through its nominee, defendant Levin. Defendant Lazareff is an officer and director of Bebo. 45. Defendants mismanagement and self-dealing have damages the nominal

defendant, Bebo, and destroyed shareholder value. 46. As a direct and proximate result of Defendants actions, the Company and the

Plaintiffs have been damaged. 47. The aforementioned acts of Defendants were willful, oppressive, fraudulent, and

malicious. Plaintiff is therefore entitled to punitive damages. WHEREFORE, Plaintiffs prays for judgment as set forth below. SECOND CAUSE OF ACTION (Abuse of Control Against Levin and Criterion) 48. Plaintiffs reallege and incorporate by reference Paragraphs 1 through 47 inclusive,

as though fully set forth in this Second Cause of Action. 49. Defendant Criterion is a majority shareholder in Bebo. Defendant Levin is

Criterions nominee on the board of directors for Bebo. Defendant Levin is also the majority stakeholder in defendant Criterion. Both Criterion and Levin have control over Bebos operations. 50. Defendants Levin and Criterion have abused their control of Bebo to the benefit

of themselves through self-dealing transactions, and to the detriment of the minority shareholders including the Plaintiffs. 51. As a direct and proximate result of Defendants actions, nominal defendant, Bebo

and Plaintiffs have suffered damages. 52. The aforementioned acts of Defendants were willful, oppressive, fraudulent, and

malicious. Plaintiffs are therefore entitled to punitive damages. WHEREFORE, Plaintiffs prays for judgment as set forth below.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 61. 58. 53.

THIRD CAUSE OF ACTION (Gross Mismanagement Against All Defendants) Plaintiffs reallege and incorporate by reference Paragraphs 1 through 52 inclusive,

as though fully set forth in this Third Cause of Action. 54. By their actions, Defendants have abdicated, and not sufficiently carried out, their

responsibilities as officers and directors of Bebo in a manner consistent with the operations of similar companies. 55. As a direct and proximate result of Defendants gross mismanagement and

breaches of duty alleged herein, Bebo has sustained significant damages in an amount to be proven at trial. 56. As a result of the Defendants misconduct and breaches of duty alleged herein,

Defendants are liable to Bebo. 57. As a direct and proximate result of Defendants gross mismanagement, nominal

defendants, Bebo and Plaintiffs have suffered damages and destruction of shareholder value. WHEREFORE, Plaintiffs pray for judgment as set forth below. FOURTH CAUSE OF ACTION (Waste of Corporate Assets Against all Defendants) Plaintiffs reallege and incorporate by reference Paragraphs 1 through 57 inclusive,

as though fully set forth in this Fourth Cause of Action. 59. By their actions alleged herein, Defendants have caused misconduct and breaches

of duty that have caused Bebo to waste valuable Company assets. 60. As a direct and proximate result of Defendants negligence, Defendants have

damaged Bebo and are liable to the Company. WHEREFORE, Plaintiffs pray for judgment as set forth below. FIFTH CAUSE OF ACTION (Unjust Enrichment Against Levin and Criterion) Plaintiffs reallege and incorporate by reference Paragraphs 1 through 60 inclusive,

as though fully set forth in this Fifth Cause of Action. 10


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62.

Through their wrongful acts and omissions, Defendants Levin and Criterion have

unjustly enriched themselves at the expense and to the determinant of Bebo. 63. As shareholders in Bebo, Plaintiffs may seek restitution from Levin and Criterion

and seek an order of this Court requiring disgorgement of all profits, benefits and other compensation obtained by Levin and Criterion from Bebo. WHEREFORE, Plaintiffs pray for judgment as set forth below. SIXTH CAUSE OF ACTION (Receivership Against All Defendants) 64. Plaintiffs reallege and incorporate by reference Paragraphs 1 through 63 inclusive,

as though fully set forth in this Sixth Cause of Action. 65. For the reasons alleged herein, appointment of Receiver is necessary for the

following independent reasons: (a) (b) the Plaintiffs. WHEREFORE, Plaintiffs pray for judgment as set forth below. SEVENTH CAUSE OF ACTION (Accounting) 66. Plaintiffs reallege and incorporate by reference Paragraphs 1 through 65 inclusive, Bebo is in danger of being materially harmed; and It is necessary to preserve the property of Bebo and the minority rights of

as though fully set forth in this Seventh Cause of Action. 67. For the reasons alleged herein, the Court should order an accounting of the books

and records of Bebo to properly determine the co-mingling of funds between Bebo, Criterion and the other Defendants. WHEREFORE, Plaintiffs pray for judgment as set forth below. PRAYER WHEREFORE, Plaintiffs prays for judgment as follows: 1. 2.
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For damages according to proof; For exemplary and punitive damages; 11

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3.

For appointment of a receiver to control the income and expenses of nominal defendant, and unwind Defendants current interested transactions.

4. 5. 6. 7.

For an accounting; For his/her costs incurred (including expert fees); Reasonable attorneys fees, as provided by law; Interest from and after the date of the service of this complaint at the legal rate; and

8. 9.

For restitution and disgorgement on behalf of Bebo according to proof; For any other and further relief as the court may deem proper. JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury in this matter. Dated: March 5, 2012 VASQUEZ BENISEK & LINDGREN, LLP

By:_ _________________________________ ERIC W. BENISEK Counsel for Plaintiffs MBX Holdings, LP, Michael Jackson, Hecker Consultancy, LLC, and SV Angel, LLC

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