Lawsuit alleges PNC built payments product with stolen trade secrets
About a year ago, PNC Financial Services Group launched an online portal that’s designed to eliminate paper-based payments for companies in the middle of a merger or acquisition. PNC Paid is part of a suite of corporate finance products and services that the Pittsburgh company offers and has described as being unique in the banking industry.
But now a Denver-based competitor is alleging that PNC Paid was built on stolen trade secrets. The aggrieved company, SRS Acquiom, wants not only monetary damages from the $410 billion-asset PNC, but also a court order that would essentially force the bank to rebuild its product from scratch.
SRS is suing PNC and two employees of the bank, both of whom left SRS on acrimonious terms in 2018. The Colorado company alleges that Alex Tsarnas and Heather Kelly used their former employer’s confidential information to accelerate the development of PNC Paid and to undercut SRS’s pricing strategies in an effort to poach its customers.
The suit shines a light on the line between corporate theft and the use of aggressive but still legitimate tactics to gain an edge over competitors.
A spokesperson for SRS Acquiom said that the lawsuit, filed in federal court in Denver, was necessary to defend the firm’s rights.
“PNC is a preeminent bank with a strong reputation, which is why we are surprised that it has found the behavior alleged in the complaint to be acceptable,” the spokesperson said in a written statement.
A PNC spokeswoman called the lawsuit a meritless effort to eliminate competition.
“PNC did not use any SRS trade secret information to launch its payments and escrow business,” bank spokeswoman Marcey Zwiebel said in an email, “and built its online portal from scratch working with a third-party designer.”
Kelly and Tsarnas, both of whom still work for PNC, declined to comment.
The high-stakes legal dispute dates to early 2018. SRS fired Tsarnas, its head of sales, in January after allegedly discovering that he embezzled more than $35,000 by deliberately misusing credit cards and falsifying expense reports. Tsarnas has denied those allegations.
Around the same time, PNC purchased Fortis Advisors, a company that offered M&A advisory services to corporate clients, but did not, according to the complaint, have a product that competed with the escrow and payments offerings from SRS.
In March 2018, PNC hired both Kelly and Tsarnas. SRS charges that in the days after Kelly resigned from her old job, she downloaded thousands of the company’s confidential files.
After joining PNC, Tsarnas and Kelly participated in development meetings for PNC Paid, according to one of the bank’s court filings, which described the two employees as subject matter experts who lent general industry and business experience.
The bank executed its first deal with PNC Paid in January 2019 and publicly launched the product three months later, according to the plaintiff.
“It’s what we’ve been waiting for,” Kelly said in an April 2019 text message to Tsarnas, following the public launch of PNC Paid, according to one court filing. “To take SRS down.”
SRS, whose clients have included Goldman Sachs and the venture capital firm Andreessen Horowitz, has said in court papers that its suite of software products took six years to build. It contends that PNC was able to develop PNC Paid in roughly a year because it got an unfair head start.
SRS also alleges that the bank’s marketing materials for PNC Paid included an image of a nonpublic SRS document. “Defendants did not even bother to change the font style,” SRS stated in a court filing. PNC has denied that the document contained confidential SRS information.
Pricing strategies are another major issue in the lawsuit. SRS claims that Kelly retained confidential information that has allowed PNC to target SRS customers by offering an identical product at a lower price. One court filing quoted a June 2019 text message from Kelly in which she anticipated SRS’s two biggest clients moving to PNC. “Just makes me so damn happy,” she wrote.
In response, PNC points to testimony from another lawsuit in which SRS Chief Executive Paul Koenig said that pricing information is not a secret.
The lawsuit may ultimately turn on the question of what qualifies as a trade secret.
One of the documents at issue in the case is a spreadsheet that SRS says it developed internally over multiple years. It includes detailed templates for collecting relevant information from deal parties, according to SRS. The company alleges Kelly sent the spreadsheet to her personal email and shared it with PNC, which then used it to develop PNC Paid.
PNC has described the same document as “a blank excel file.”
“This is a trade secret case with zero secrets,” the bank stated in a December court filing.
SRS, which is majority owned by the private equity firm Lovell Minnick, is seeking a preliminary injunction against PNC. Such an order could force the bank to pull its existing product out of the market until it can develop an untainted version. U.S. District Judge Daniel Domenico has scheduled a hearing for March 11.
The PNC spokeswoman said that the company looks forward to disproving the lawsuit’s claims in court.
“PNC has a strong corporate governance program,” she said, “which includes procedures to ensure that all employees honor their contractual obligations and that PNC does not obtain or use another company’s proprietary or confidential information … ”.