Surf Air (URF, Santa Monica) co-founder Dave Eyerly is suing the airline and its investors turned majority shareholders Velos Partners, Anthem Venture Partners, and Base Ventures claiming they defrauded him of more than USD125 million in Surf Air stock.

In his complaint, Eyerly articulates how he and his brother Wade Eyerly (now CEO of Beacon (Boston)) founded Surf Air in 2011 although he claims that he was responsible for devising the airline's unique subscription-based business model.

Initially, the two brothers each owned a 50% stake in the start-up but Dave agreed to scale down his shareholding to no less than 12.5% in return for financing supplied by the three above-mentioned venture capital firms.

Given Surf Air's rapid growth and multi-billion dollar potential, Eyerly, who was the airline's Chief Operating Officer (COO) from 2011 to 2013 when he was asked to resign by Wade, claims the three firms then plotted to and did take over Surf Air for the purpose of misappropriating his equity.

"They orchestrated Dave's termination, illegally diluted Dave's 12.5% equity and concealed that from him. Dave was shocked when he learned that he owned only .75% of the company he conceptualized and founded," his petition read.

Dave alleges that after Surf Air completed Part 121 certification with the US Federal Aviation Administration (FAA), it was then forced to accept what he described as 'the onerous' terms of a bridging loan whose repayment clause included an "exclusive right to convert the loan amount into preferred stock".

"To pad the value of this right, the Controlling Shareholder Lenders negotiated this deal at an artificially low valuation of Surf Air. They used the Bridge Loan as a way to obtain valuable equity on the cheap."

Dave further claims the acceptance of the loan's terms would require both his termination and loss of boardroom seat which he claims, was achieved by collusion with his brother Wade and then CFO Reed Farnsworth. He further claims the two had promised he would retain his 12.5% stake in the airline despite his departure but provided he did not attempt to fight it legally.

Dave claims that although he complied and left the airline, he was never issued with a stock certificate reflecting his ownership of 12.5% of the airline. In December 2014, he claims he was eventually issued with a new stock certificate, but only for 0.75%. The airline claimed that a stock split had occurred after the bridge loan had been secured thereby resulting in his shareholding being whittled down to 0.75%.

"These controlling shareholders/lenders were wolves in sheep's clothing," he claims."Dave has been cheated out of his 12.5% ownership-the benefit of his innovation and efforts. Dave was the victim of a complex and malicious scheme undertaken by Defendants Anthem, Velos and Base, venture capital lenders that are also Surf Air's controlling shareholders."

In its response, Surf Air says "it will always defend itself against meritless litigation and is confident this case will ultimately be dismissed."