Ex-Atomos CEO alleges discrimination and ‘illegal conduct’ behind early exit

Former Atomos CEO Estelle McGechie has filed a legal complaint alleging that her departure from the company was due to gender discrimination and her investigation into “securities fraud and revenue manipulation” at the company. 

McGechie was appointed CEO in September 2021, after only coming fully on board at the company in July 2021 as chief product officer. However, she then left the company in April 2022, with Atomos claiming that her failure to relocate to Australia was behind the decision. McGechie has also worked for The Walt Disney Company, Apple, Logitech, and Frame.io over a 20+ year career, and is originally from Australia.

Last month, McGechie filed a legal complaint with the California Superior Court, alleging that this was not the reason she was ousted. The complaint asks for damages and a jury trial into the situation. 

According to McGechie, Atomos terminated her contract with the company after she ran an “investigation into and reports about Atomos’s securities fraud and revenue manipulation, including falsely reporting sales forecast information to shareholders, ‘channel stuffing’ (shipping excessive product to distributors to prematurely record sales and fraudulently inflate revenue), knowingly shipping defective and inoperable merchandise to prematurely record sales, and insider training.”

The complaint also claims there is a “boys’ club” culture at the company, saying that, “while men are frequently touted and supported despite their relative lack of experience and inappropriate conduct, she was micromanaged, more harshly criticised for her ‘management style’, and targeted when she spoke up.”

McGechie then alleges that Atomos terminated her contract to avoid confronting its fraud and “scapegoat” her, only to “immediately” try to rehire her in “an apparent mea culpa”, before finally terminating her contract again when she “made it clear that she would not turn a blind eye to multiple compliance issues at the company.”

A more detailed explanation of the claims is below, followed by Atomos’ response to the complaint.

Gender discrimination claims

In addition to gender discrimination, McGechie alleges that a former Atomos employee “was sexually harassed and assaulted by a male executive on multiple occasions between 2016 and 2017.” This included, “forcibly trying to kiss and touch her.” It is claimed that when these incidents were reported to the then COO Tony Trent and then CFO James Cody, the pair, “informed the harasser of the report.” In response, he allegedly “escalated his conduct, culminating in him physically and verbally assaulting the employee at a work event. In front of customers and employees, he threatened that if she ever talked to anyone about his conduct, he would tell people that she came on to him.” 

The employee allegedly later resigned after fleeing the event, with a male colleague also resigning after witnessing the event and trying to defend her.

Another claim details that a former employee made a complaint to the Victorian Equal Opportunity And Human Rights Commission against Atomos co-founder Jeromy Young and COO Mark Harland in April 2021, alleging “abusive behavior”. According to the complaint, when she told Harland about Young’s behaviour, she was told that she needed to, “get drunk with him.” McGechie was allegedly sent the complaint in March 2022, and when she tried to remedy the situation on multiple occasions, was told the employee was, “difficult”, “useless”, and “covering up her poor performance.”

McGechie also alleges that she herself was discriminated against, claiming that despite working “amicably” with the all-male executive team while chief product officer, when she became CEO she received “pushback”. This is apparently in contrast to how former male CEOs were treated.

In addition, allegedly, “often during meetings, board members Mr. [Stephen] Stanley and Sir Hossein Yassaie would express, non-verbally and verbally, for Ms. McGechie to keep quiet or to only speak when she was invited to and agreed with them. On one occasion, Sir Yassaie explicitly told her not to speak.” She also claims to have held her hand up for 12 minutes waiting to be called on, and when finally acknowledged she was interrupted by male board members before having to wait another 15 minutes to be acknowledged again. She also claims that two acquisitions fell through because of the board’s behaviour, and that she received six months’ severance pay, while former CEO Young received 12.

Illegal activities claims

In addition to the discrimination claims, McGechie alleges that Atomos engaged in “channel stuffing”, which is described as, “forcing more products through a distribution channel than the channel is capable of selling through.” This allows a company to record inflated sales numbers, which in turn can inflate its share price.

McGechie allegedly began looking into Atomos’ sales patterns in late 2021, and claims that she found the company “had been ’channel stuffing’ for years.” According to the complaint, McGechie also spoke to a former Atomos director of business development who had been told to “just accept” the alleged illegal behaviour.

McGechie also allegedly discovered that the company, in June 2021, shipped some of its AtomX CAST units without any software installed on them, making them “essentially paper weights,” in an effort to boost its results for the 2020 financial year. In Australia, the financial year ends on 30 June and begins on 1 July. A similar situation is alleged to have happened with its grading monitor, Neon, in November 2020, with Neon packaging also falsely claiming that it had Android support and listing Dolby Vision to suggest it was an integrated feature despite not having legal clearance to use its trademark.

There are several other examples given of activities related to “channel stuffing”, naming senior figures at Atomos and alleging they knew about and encouraged the practice.

Dismissal

At the time of her leaving the company, Atomos claimed that McGechie was let go as she hadn’t moved to Australia. However, McGechie counters this claim by saying that Covid restrictions, which were extremely strict in Australia, did not allow her to move to the country easily, and alleges that the company had been working with her on this.

Following McGechie leaving Atomos, the company disclosed that it was not going to meet its revenue forecast in May 2022. McGechie claims that by noting that the first four months of the year were to blame for this and that it had been corrected in mid-April, Atomos is attempting to blame her for this situation.

Atomos response

Atomos has issued this statement in response to the complaint.

In the complaint, McGechie’s lawyers state that the case should take place under Californian law as McGechie’s contract was agreed there, she worked from California, Atomos has a significant presence in the US and makes the majority of its sales there, its executives regularly travel there, and Atomos received a loan from the US government during the pandemic.

Meanwhile, in Atomos’ 2021 annual report to shareholders, which can be found on the Atomos website here, Deloitte notes on p99 that its audit of Atomos’ financial report, “is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.”