Square COO Rabois Resigns After Alleged Misconduct

Square Inc., the mobile-payment startup, said Chief Operating Officer Keith Rabois has resigned after he was accused of misconduct by a fellow employee.

Following a statement this week that he was leaving to do something new, the company sent out an e-mail yesterday saying it received the threat of a lawsuit two weeks ago from an employee. In a blog post, Rabois said he was involved in a romantic relationship with someone who was hired at Square. He denied allegations that the relationship was non-consensual.

“While we have not found evidence to support any claims, Keith exercised poor judgment that ultimately undermined his ability to remain an effective leader at Square,” the company wrote. “We accepted his resignation.”

When Rabois started in 2010, the company had 17 employees, and fewer than 1,000 merchants were actively using the product - - a stamp-sized device that enables credit-card payments via mobile phones. Valued at $3.25 billion in August, it has more than 3 million individual and business customers and processes more than $10 billion in transactions on an annual basis.

Rabois said in the blog that he shouldn’t have continued the romantic relationship with the co-worker.

“While I have certainly made mistakes, this threat feels like a shakedown, and I will defend myself to the full extent of the law,” Rabois wrote.

Square has hired attorney Richard J. Curiale, who didn’t respond immediately to a phone call seeking comment. Rabois didn’t respond to an e-mail seeking comment. The Wall Street Journal first reported on the allegations.

Job Interview

Rabois said in the blog that the relationship was with someone he met through friends in 2010. Several months later, he recommended that the person apply for a job at Square. That person was hired, never reported directly to him, and the company didn’t know about the relationship, Rabois wrote.

Rabois said he received a threat last week that he would be accused in a lawsuit “of some pretty horrible things.” He was told it would take millions of dollars to “make this go away, and that my career, my reputation, and my livelihood will be threatened if Square and I don’t pay up,” he wrote.

Rabois concluded the blog post by saying that he is working on something new, which he hopes to announce next month.

Rabois has been a prolific angel investor, having backed more than 35 companies, including YouTube Inc., Yammer Inc., Airbnb Inc. and Pinterest Inc., according to his website. He’s also on the board of review site Yelp Inc., which went public last year.

PayPal Competition

Chief Financial Officer Sarah Friar will become acting COO, San Francisco-based Square said on Jan. 24. Friar joined the startup in July after a stint at Salesforce.com Inc. Prior to that she spent more than a decade in the technology group at Goldman Sachs Group Inc.

Square was started by Twitter Inc. co-founder Jack Dorsey in 2009. In December, Square stepped up competition with PayPal by letting small merchants sell gift cards to shoppers on the go. The two companies are competing for business in the mobile payments market, which Juniper Research estimates may top $170 billion in transactions by 2015, up from $60 billion last year.

Starbucks Corp. contributed to the $200 million in financing in August that gave Square its valuation.

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