Criterion Capital Partners has offloaded struggling social network Bebo, but it could still face months of litigation before it's free of the company for good.
The Beverly Hills financial advisory firm sold the company, which was operating under Chapter 11 of the bankruptcy code, back to Michael Birch, its founder, for about $1 million.
While the sale may have moved Bebo off Criterion's books, litigation between Birch and Criterion is expected to continue.
Birch, through his MXB Holdings, sued Criterion last year, alleging it had mismanaged Bebo and failed to disclose financial information to shareholders. Despite the purchase, an attorney for MXB said the litigation would continue.
"The lawsuit has become more valuable to Mr. Birch post-bankruptcy because it clears away some of the other creditors," said Eric Benisek, an attorney at Lafayette law firm Vasquez Benisek & Lindgren representing MXB.
Birch and his wife founded Bebo in 2005 and sold the company three years later to AOL for $850 million. AOL in turn sold Bebo to Criterion in 2010 for $10 million.
Birch rejoined Bebo as a strategic advisor in December that year and became a shareholder. But in 2012 he, through MXB, and three other shareholders filled a suit against Criterion, its Managing Director Adam Levin and another director, Tristen Lazareff.
Among the allegations are claims that Criterion ignored lawsuits, defaulted on Bebo's lease in San Francisco and exploited Bebo by appointing Criterion employees as Bebo executives.
Levin, who also served as Bebo's chief executive, told blog PaidContent at the time that the lawsuit was "a baseless claim and amounts to a fishing expedition."
Bebo filed for bankruptcy protection in May.
"Burke took a good look at what was happened and realized that Bebo was essentially insolvent," Benisek said. "They realized that the only way to keep the company up was to meet the bankruptcy."
Birch tweeted Monday afternoon that he and his wife had bought back the company at the bargain-basement price of $1 million. Benisek said one of the other bidders was Match.com.
An attorney representing Bebo in the bankruptcy did not respond to a call requesting comment. Levin could not be reached for comment.