The Rippling/Deel corporate spying scandal may have taken another wild turn

The Department of Justice has reportedly opened a criminal investigation into HR and payroll startup Deel over allegations that it hired a corporate spy to leak information on its biggest rival, Rippling, reports the Wall Street Journal.

In an emailed statement to TechCrunch, Deel says that it is “not aware of any investigation. We will always cooperate with the relevant authorities and provide any necessary information in response to valid inquiries.”

Deel’s statement then makes its own allegations against Rippling. It points to its own lawsuit that alleges its rival has been on a “smear campaign,” claiming it’s beating the competitor in the market, and adding, “the truth will win in court.” Rippling declined comment.

This is arguably the biggest drama between two HR startups ever.

To recap, Rippling sued Deel in May, and revised the suit in June, alleging that its rival planted a corporate spy. The Rippling employee was caught in a sting operation and confessed to being a paid spy for Deel in an Irish court via a sworn written statement that reads like a Hollywood movie. The employee testified that he took Rippling’s sales leads, product roadmaps, customer account info, names of superstar employees, whatever was asked for, and handed it over to Deel executives.

Rippling’s suit, which is ongoing, charged its rival with violations of the federal racketeering law (known as the RICO statute and typically used against organized crime) among other laws it cited. But despite using phrases like “criminal syndicate,” this was a civil suit, not a criminal prosecution.

Deel countersuited Rippling, also alleging spying by impersonating a customer, among other claims.

The spy lived in fear

The man who confessed to spying agreed to testify in Rippling’s case, and Rippling agreed to pay him for legal and travel expenses, according to the man’s cooperation agreement released as a court document and seen by TechCrunch. Deel is now calling the man Rippling’s “paid witness.”

But the man also went back to court alleging that his family was living in terror because he believed men from Deel were following him. Deel’s lawyer initially denied this but later discovered that Deel did hire surveillance.

Payment to the spy

Rippling scored the most recent win, at the end of November, when it obtained bank records. The records indicated that Deel transferred funds into an account held by the wife of Deel’s COO, and 56 seconds later that account transferred the same amount to an account held by the confessed spy.

In the meantime, another court document shows that Deel’s founder and CEO Alexandre Bouaziz, who has been called “the mastermind” of the spying plot in Rippling’s lawsuit, has hired high-powered lawyer William Frentzen to represent him. Frentzen is a partner with Morrison Foerster’s white collar defense group and was formerly the chief of the corporate and securities fraud unit of the U.S. Attorney’s Office for the Northern District of California.

Rippling’s lawyer is none other than Alex Spiro of white-shoe law firm Quinn Emanuel. Spiro is a former prosecutor for the Manhattan District Attorney’s Office who is known for his big personality and long list of celeb clients, ranging from Elon Musk to Jay Z.

So it’s all sounding like a plot from a John Grisham novel, with a sprinkle of the show “Suits” on top.

None of this has stopped investors from backing Deel or Rippling. In October, Deel announced it hit a $17.3 billion valuation after raising $300 million led by Ribbit Capital and Andreessen Horowitz. Rippling hit a $16.8 billion valuation in May after raising $450 million from investors like Elad Gil, Goldman Sachs Alternatives, and Y Combinator.