The HR technology sector is facing heightened scrutiny as the Department of Justice reportedly launched a criminal investigation into Deel, a rapidly growing payroll and HR startup. The probe centers on allegations that Deel engaged in corporate espionage, hiring a spy to obtain confidential information from its primary competitor, Rippling. This development escalates a bitter legal battle already underway between the two companies, raising questions about competitive practices within the industry and the lengths to which startups will go to gain an edge.
Deel acknowledged the ongoing civil litigation with Rippling in a statement to TechCrunch, but denied awareness of a criminal investigation. The company reiterated its commitment to cooperate with authorities while simultaneously accusing Rippling of conducting a “smear campaign” designed to undermine its market success. Rippling has declined to comment on the reported DOJ investigation.
The Rippling vs. Deel Spying Allegations
The current situation stems from a lawsuit filed by Rippling in May, alleging that Deel orchestrated a sophisticated effort to steal trade secrets. The suit was amended in June to provide further details of the alleged scheme. According to court documents, a Rippling employee confessed to being paid by Deel to provide access to sensitive data, including sales leads, product roadmaps, and employee information.
The confession was made in an Irish court as part of a sworn statement, detailing how the employee allegedly delivered the requested information to Deel executives. While Rippling’s initial complaint invoked the federal racketeering law (RICO), it remains a civil case seeking monetary damages and injunctive relief. Deel responded with a countersuit, claiming that Rippling was also involved in espionage, allegedly by impersonating a customer.
Details of the Alleged Espionage
The case took a dramatic turn when the alleged spy expressed fears for his safety, claiming that individuals associated with Deel were conducting surveillance on him and his family. Deel’s legal counsel initially denied these claims, but later admitted to hiring surveillance. This admission further fueled the accusations of aggressive and potentially illegal tactics.
A key piece of evidence emerged in late November when Rippling obtained bank records. These records reportedly show a transfer of funds from Deel to an account held by the wife of Deel’s Chief Operating Officer, followed almost immediately by a transfer of the same amount to an account belonging to the confessed spy. This sequence of transactions has been presented as direct evidence of payment for the alleged espionage.
Meanwhile, Deel’s founder and CEO, Alexandre Bouaziz, has retained William Frentzen, a prominent white-collar defense attorney from Morrison Foerster, to represent him. Frentzen previously served as chief of the corporate and securities fraud unit of the U.S. Attorney’s Office for the Northern District of California. Rippling is represented by Alex Spiro of Quinn Emanuel, known for his high-profile clientele and assertive legal style.
The legal teams involved represent a significant investment in the defense and prosecution of these claims, highlighting the high stakes of the dispute. The involvement of such experienced legal counsel suggests both companies are preparing for a protracted and complex legal battle. The escalating conflict has drawn attention to the competitive landscape of the HR tech industry.
Despite the serious allegations, both Deel and Rippling have continued to attract substantial investment. In October, Deel announced a $300 million funding round led by Ribbit Capital and Andreessen Horowitz, valuing the company at $17.3 billion. Rippling secured a $450 million investment in May, bringing its valuation to $16.8 billion. This continued investor confidence suggests a belief in the long-term potential of both companies, even amidst the legal turmoil. The payroll software market remains highly competitive.
The reported criminal investigation by the Department of Justice represents a significant shift in the dynamic between Deel and Rippling. While the civil lawsuit focuses on financial damages and trade secret protection, a criminal investigation could lead to individual indictments and potential jail time. The DOJ’s involvement signals that the allegations are being taken seriously by law enforcement.
The next steps will likely involve the DOJ issuing subpoenas for documents and testimony from individuals associated with both companies. The timeline for the investigation is uncertain, and it could take months or even years to reach a conclusion. Observers will be closely watching for any indictments or further developments in the civil lawsuit, as well as the potential impact on the broader startup ecosystem and the competitive practices within the HR technology sector.
