What can my friend do if the startup he has stock options in fires everyone, and then rehires them for a different company that does the same thing?

Chris Barsness,

startup, finance, law, and tech nerd

There are a number of factors, but he is probably out of luck in all reality.  That's just one of the risks you take when you work for a startup and agree to stock or options.  If he wants to fight it, he certainly can, but he probably won't find a lawyer who will take it on a contingency, so he will have to come up with some cash.  It sounds like he would not want to even own equity in a 'shady' company, what is the point if they will have no value down the road?

To properly analyze it, one would have to know the mechanics of whatever transaction took place and what the terms of any related legal documents may say.  There are things like change in control provisions sometimes in options or option plans that set out what happens if a change in control (e.g. acquisition) takes place.  Also, any merger or acquisition agreement normally cover things like what happens to the other company's assets, employees, and benefits such as options. 

There may be some type of fraud going on, but you would need evidence of what exactly is taking place.  There are some governmental agencies that may look into it due to securities laws, employee benefits laws, whistle-blower or consumer protection laws, but I don't see anything off hand that would make any lawyer jump to fight for your friend.  Remember, that if the company really is a struggling startup, he may get a judgement, but who is going to pay it?

Best bet, have him claim that he wants to see proof of the so-called transaction because it sounds like they just wanted to get out of any obligations to their employees and clean up the old company and it may be fraud.  See what happens, but don't be surprised for him to suddenly be without a job if he wants to take that route.

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