Private equity and venture capital litigation on the rise: An interview with John Bender of K&L Gates

Business Journals

05-05-2025

The Seattle office of K&L Gates has a long-standing history of representing clients in high-stakes fraud and insolvency litigation in the Pacific Northwest region. The firm recently welcomed partner John Bender who has spearheaded some of the most high-profile white-collar cases involving the local private equity and venture capital industries over the past two years.
Bender represented major investor groups in two of the largest cases of alleged investment fraud in recent years locally: iCap Equity and WaterStation Technology, in which creditors asserted roughly $500 million in total losses. Bender served as court-appointed counsel and lead trial lawyer in iCap's insolvency proceedings in which a federal court found that iCap — the once prominent Bellevue-based investment fund — operated as a Ponzi scheme for several years. In WaterStation, Bender secured early rulings preserving assets for creditors and now serves as court-appointed counsel for the creditors committee in the bankruptcy.
In the following Q&A, Bender — who represents both institutions and investors — shares his perspective on common themes he's seen in his cases and lessons for executives in these high growth industries.
What is it about private equity and venture capital that can lead to legal disputes?
John Bender: Private equity and venture capital are unique in that the entire paradigm is focused on making good decisions with other people's capital. Whether you're a founder, advisor or institution, these decisions are all about weighing risks and performance. The stakes are high in that environment.
What are common issues you have seen in these cases?
Bender: In many cases, you have businesses that start with a good idea but lose their way because they move too fast, lose sight of the big picture or start taking on debt without a good plan for how to repay that debt. Smart, well-meaning business leaders can forget to communicate about the details or risks that financial stakeholders need to know to make informed decisions. Small missteps or oversights can turn into serious problems down the road if they aren't addressed. You see this at times with organizations that have a vacuum at the top that lack checks and balances.
What lessons can business leaders learn from the high-profile regional cases we have seen over the past few years?
Bender: At a macro level there is some truth to some litigation being cyclical. There seems to be a pattern of these cases emerging on the heels of broader economic trends. But that isn't the same thing as cause and effect. The roof caved in on Bernie Madoff during the 2008 financial crisis, but the fraud went on for many decades. Everyone remembers that in '08 the economic environment changed rapidly, credit dried up and people started putting their money on the sidelines — that posed existential challenges for Madoff because he couldn't find new cash sources to keep the money flowing in.
Issues around debt are also frequent flyers in these cases. I've heard it called 'the oldest trick in the book' when an enterprise doesn't generate the revenues it needs to meet investor expectations and just becomes a network of corporate entities whose primary function is raising cash and paying each other's debts. It becomes a doom cycle that only lasts for as long as new credit is easy to come by.
These schemes seem to fall apart any time there are major fluctuations in interest rates that impact the supply and demand for new credit. On the flip side they tend to do well when interest rates are low, and new credit is easy to come by.
Do you anticipate more litigation in the local private equity and venture capital spaces in the future?
Bender: Private equity and venture capital are dynamic growing areas and that's a great thing for the region. We're fortunate to have such vibrant industries here. Litigation risks are to some extent inevitable and they can tend to ebb and flow with broad economic trends. To the extent we see more volatility driven by things like tariffs and inflation, it is more important than ever for business leaders to surround themselves with professional advisors with deep and diverse experience.
What is one significant takeaway from your work that business and industry leaders should know?
Bender: At a high level most cases involving investments that fail or allegations of mismanagement or worse do not develop overnight. Most of these cases entail a constellation of missteps over the span of months and even years' worth of bad decisions. This is why these cases are so challenging — they require unpacking the entire chain of events that lead to tragic outcomes. In most cases, these outcomes could have been entirely avoided had different choices been made along the way.
Learn more about the K&L Gates Seattle high-stakes fraud and insolvency litigation team.
Mike Gearin is a partner in the firm's Restructuring & Insolvency Practice in Seattle. Gearin concentrates his practice in insolvency, workouts and commercial reorganizations and has significant experience in the resolution of Ponzi schemes in bankruptcy.
Phil Guess is a partner in the firm's Litigation & Disputes Practice in Seattle. Guess focuses his litigation practice on complex business disputes with a focus on representing financial services clients in high stakes fraud and Ponzi cases in state court and in bankruptcy.
Brian Peterson is a partner in the firm's Restructuring & Insolvency Practice in Seattle. He has significant experience representing bankruptcy trustees in Ponzi scheme cases and in fraudulent transfer litigation.