Business Insider has obtained the results of an internal investigation after a messy breakup between founders leads to allegations.

In 2019, Erica Johnson listened to her close friend and cofounder, Alyson Friedensohn, read a statement Friedensohn wrote on her phone saying that Johnson’s performance was lagging and asking her to give up a portion of her company shares.
Modern Health sells mental health services like virtual therapy and meditation as an employee benefit, a booming business as companies look for ways to help their workers deal with the chaos and confusion of today’s world.
Johnson refused the request to sell her shares and a few days later, she met separately with the company’s only other board director, Mamoon Hamid, an investor from Kleiner Perkins, to address her concerns around her cofounder’s behavior. Soon after, Johnson was fired.
In November, Johnson sued the company and its CEO, Friedensohn, for breach of contract and wrongful termination. The company now says its board has finished an internal investigation into her claims and found the suit has no merit.
Two newly installed directors, Dick Costolo, who has a small company stake, and serial entrepreneur Penny Herscher, hired outside counsel in July to interview witnesses and review “thousands of relevant documents,” according to a 102-page report that Business Insider obtained.
The board concluded that the lawsuit is a byproduct of Johnson’s “personal vendetta” against Friedensohn, after the CEO wanted to demote her and dock her shares, according to the report.
The report says that Johnson only raised issues about Friedensohn after their conversation, and “not at any point during her prior two years with the company.” It suggests a plot in which the ousted cofounder wanted to remove the CEO from her position and “starve the company of the necessary capital to grow” by scaring off potential investors.
But Johnson’s legal team raises questions around how impartial the investigation was.
Her attorney, Harmeet Dhillon, said the company tapped a pair of tech insiders, aka new board members Costolo and Herscher, “neither of whom have any healthcare experience,” to look into the claims in Johnson’s suit. The board of directors and their attorneys refused interviews with “all the relevant witnesses,” Dhillon said, and declined to review numerous key documents and other evidence.
For example, the investigators spoke with six current employees, including Friedensohn, and one former contractor, but they were unable to interview former employees who were named in Johnson’s suit, according to the report.
They also did not interview Johnson’s husband, John Jersin, who is an investor in the company, or his two friends at C3 Ventures, which also wrote an early check into Modern Health. C3 has filed a separate suit against it for breach of fiduciary duty.
“When you cherry pick an investigation, you get a cherrypicked report,” Dhillon said.
So far, the episode hasn’t much affected Modern Health, a three-year-old startup that is, by its own account, flourishing. It has increased revenue 7X and grew from 23 employees to more than 130 since Johnson was fired, according to the company.
But as the cofounders ready to take their breakup to court, their feud could distract from the company’s mission of giving everyone access to mental health care and at an otherwise good time for it to raise capital and sign up customers.
Johnson is a neurobiology researcher and engineer who joined the company as its technical cofounder just before it enrolled in the famed startup accelerator, Y Combinator. She was later promoted to chief science officer.
When the company went out to raise capital to fuel its growth in 2019, Johnson alleged that it exaggerated key metrics, such as the number of therapists and coaches in its network, to win over potential investors and customers.
She cited a slide in its pitch deck that read “Global Provider Network” and listed “5,372 therapists” and “18,900 coaches.” The company had closer to 180 providers at that time, her legal team said.
The numbers in the deck were a reflection of the “accessible” therapists and coaches it could possibly enroll, the report explained. And the board said it found “insufficient evidence” that those figures were ever represented to anyone as actual number of providers. Still, Johnson felt that the slide misled investors and customers. She worried that the startup would not have enough therapists to meet demand from end users, her legal team said.
In her complaint, Johnson’s attorney argues that she was fired for outing her cofounder’s alleged misconduct to Hamid.
But the board’s investigation levels other charges at the now removed Johnson. The report said in her three years at the company, she never published articles in scientific journals and claims that current employees told investigators that Johnson was not adding value in her role as chief science officer and they were frustrated with her output.
For her part, Friedensohn said in an email that she’s committed to growing the business, in spite of the drama.
“It’s a shame that a company dedicated to such an important mission has been the target of a meritless lawsuit like this. But over the past year, we’ve remained focused on providing mental health support when people have needed it the most,” she wrote, adding that she’s “looking forward to resolving this dispute” so she can get back to business.
The board has filed a motion in the San Francisco Superior Court to dismiss Johnson’s complaint based on the findings outlined in its lengthy report.
Johnson’s attorney Dhillon said she believed the board’s “sham investigation” will have no impact on her client’s litigation. The court previously granted a stay on the case to allow the board to complete its investigation, and she believes the suit will pick back up in February.
As for the report’s suggestion that the suit is retribution for Johnson’s firing, Dhillon said, “It’s ironic that, for a company that has been a poster-child for female-led businesses, Modern Health pivots to tired sexist cliches by essentially calling cofounder Erica Johnson emotional and vindictive for insisting on corporate integrity and patient safety.”
Here is Modern Health CEO Alyson Friedensohn’s full statement:
“It’s a shame that a company dedicated to such an important mission has been the target of a meritless lawsuit like this. But over the past year, we’ve remained focused on providing mental health support when people have needed it the most. We’ve made great strides toward destigmatizing mental health in the workplace and now proudly support over 170 companies globally. We’re looking forward to resolving this dispute so we can continue to dedicate our energy on what matters to us most — making sure everyone gets the mental health support they need.” 
Here is the full statement from Harmeet Dhillon, attorney for Erica Johnson:
“When you cherry pick an investigation, you get a cherrypicked report.
“It’s clear that Modern Health, Ms. Friedensohn, Mr. Hamid, and the rest of the Board are playing to type — they are now covering up a cover-up with another cover-up. If the company were interested in conducting a serious investigation, it would have interviewed all the relevant witnesses and reviewed all the relevant documents. However, they refused to do so.
“The (special litigation committee’s) report makes clear a number of issues. It omits key facts, testimony and documents from at least seven key witnesses.  It makes clear that the SLC didn’t proactively investigate anything but instead permitted defendants to pick and choose what they wished to produce. In many instances, the SLC didn’t find any documentary evidence, which is not surprising because the SLC permitted the defendants to select the evidence to give to the SLC.
“Sharing and spinning the report with the press first only confirms our worst suspicions. Modern Health’s most recent sham investigation report demonstrates yet again that the company’s leaders prioritize their own personal interests over the health and safety of patients, investor transparency, and customer service delivery. Erica looks forward to her day in court.”