REFILE-UPDATE 3-Square COO quit after sex harassment accusation

Fri Jan 25, 2013 11:11pm EST

* Square's COO quit after being threatened by harassment lawsuit

* Calls the threat a "shakedown", vows to fight accusation

* Incident recalls lawsuit several months ago that shook VC world

By Gerry Shih and Sarah McBride

SAN FRANCISCO, Jan 25 (Reuters) - The chief operating officer for mobile payments company Square, Keith Rabois, abruptly resigned this week because an employee accused him of sexual harassment and demanded "millions of dollars" to stave off a potential lawsuit, Rabois said in a Friday blog post.

The revelation by Rabois, a well-known senior executive and active startup investor, caused a sensation in Silicon Valley and ignited a flurry of online chatter about Square, founded in 2009 by Twitter co-creator Jack Dorsey.

Rabois' case, which involved a same-sex relationship with a Square employee, follows another Silicon Valley workplace scandal eight months ago when Kleiner Perkins executive Ellen Pao alleged incidents of sexual harassment in a lawsuit against the high-powered venture capital firm for gender discrimination.

Kleiner has denied all of Pao's claims and the case remains in court.

In a lengthy Tumblr blog post, Rabois said he had been contacted by a New York attorney for his accuser, an unidentified male with whom he had a relationship beginning in 2010. Rabois, who recommended the man for a position at Square, said he was recently told his accuser would file a lawsuit alleging that their relationship was not consensual, and that Rabois did "horrible things," which Rabois did not spell out.

"I was told that only a payment of millions of dollars will make this go away, and that my career, my reputation, and my livelihood will be threatened if Square and I don't pay up," Rabois wrote.

Rabois, 43, flatly denied the allegations and pledged to defend himself.

"The relationship was welcome," Rabois wrote. "While I have certainly made mistakes, this threat feels like a shakedown, and I will defend myself to the full extent of the law."

A lawyer by training, Rabois detailed how he met his accuser through mutual friends. Several months after the meeting and after they had spent time together, Rabois said he recommended his friend to the company, which hired him. It is unclear whether the accuser still works at Square.

"I realize that continuing any physical relationship after he began working at Square was poor judgment on my part," he wrote, adding that the company did not know of the relationship until the recent lawsuit threat.

Dorsey, who accepted Rabois' resignation late on Thursday, declined to comment on Friday.

Attempts to reach Steve Berger, the lawyer representing the unnamed accuser, on Friday were unsuccessful.

Link to Rabois' blogpost:

INVESTIGATION

The mobile payments company is one of Silicon Valley's hottest start-ups, raising $200 million late last year in a funding round that valued the company at $3.25 billion. Rabois, a former executive at eBay Inc's PayPal who has a law degree from Harvard Law School, joined Square in 2010.

In August, Starbucks announced a deal to use Square's technology to process debit and credit card payments at the coffee chain's stores. Starbucks CEO Howard Schultz is a Square board member.

"We took these allegations very seriously and we immediately launched a full investigation to ascertain the facts," Square spokesman Ricardo Reyes said in a statement.

The company, which retained San Francisco lawyer Richard Curiale to conduct an internal investigation into the matter, said it has not found any evidence to support any of the claims, but added, "Keith exercised poor judgment that ultimately undermined his ability to remain an effective leader at Square."

Rabois said in his blog on Friday that the recent events were "the toughest, saddest, most frightening, and emotionally draining of my life."

The blog post followed his simple resignation statement the day before.

Rabois shot to prominence in tech circles in the early 2000s, when he served as a top executive at PayPal. Now a director of Yelp Inc, Rabois is a member of the "PayPal Mafia," the Silicon Valley nickname for the circle of influential PayPal alumni.

DJ Patil, a data scientist at venture capital firm Greylock Partners and a former executive at LinkedIn, where Rabois once worked, tweeted: "While I may not see eye-to-eye (with) @rabois on everything. I'm fully on his side on this 1. He's always held himself to the highest standard."

Pao tweeted on Friday: "The ultimate measure of a man is ... where he stands at times of challenge and controversy - MLK keithrabois.tumblr.com/post/414631892 @rabois."

The Wall Street Journal first reported the sexual harassment accusations against Rabois on Friday.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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