Two of Redfin’s earliest employees have filed suit against the company, alleging that the company is trying to wipe out their shares in anticipation of an initial public offering.

At Redfin’s inception, Michael Dougherty, a Redfin co-founder and original investor, and David Selinger, who served as Redfin’s chief technology officer, were given restricted stock agreements in which Dougherty received 2 million shares and Selinger received 924,000 shares. Those shares were to become fully vested if they left the company for good reason, or if there was a change of control.

In 2005, both left Redfin and signed settlement agreements that acknowledged that all of their shares were fully vested, but gave Redfin the right to repurchase their shares at 40 cents per share unless there was a change in control.

In their complaint, attorneys for Dougherty and Selinger say the two would have never granted Redfin a repurchase right had they known that the company was not “broke” as they say they were told, but rather was in the process of securing significant financing from Madrona Capital.

Moreover, they allege Madrona’s investment constituted a change in control and that Redfin never informed them of that status change.

“In January 2014, and apparently in anticipation of an initial public offering, Redfin purported to exercise its right of repurchase from Messrs. Dougherty and Selinger, and purported to cancel their shares,” the complaint said. “That right never existed, however, because it was obtained by misrepresentation.”

Read the complaint. It accuses Redfin of breach of contract and seeks damages “in an amount to be proven at trial.”

Redfin announced a $50 million “mezzanine investment” in November led by Tiger Global Management LLC and by portfolios managed by T. Rowe Price Associates Inc. that was viewed as setting the company up for an initial public offering.

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