Telestream vs. Encoding.com Lawsuit Goes Public with Reputations at Stake
Telestream, the veteran digital video software and workflow tech provider, is fighting a lawsuit brought by two former employees which may have salutary lessons for company owners planning a sale to private equity.
The suit, brought by Greggory Heil and Jeffrey Malkin, co-founders of Encoding.com, against Telestream claims unpaid acquisition consideration, wrongful termination, fraudulent transfer, and successor liability.
Ultimately, this case (No. CU0001096, Superior Court of California, Nevada County) may be settled in court but the jury of public opinion is already weighing its vote – and it doesn’t look good for the reputation of the private equity led management at Telestream.
First let’s get some facts on the table.
CEO Dan Castles co-founded Telestream (with two others) in 1998. He oversaw a private equity sale to Thoma Bravo in 2012 and grew the company with a series of acquisitions, nine of which were fuelled by the investment of Genstar Capital which has owned the company since 2015.
Heil and Malkin founded Encoding.com in 2008 before selling to Telestream in 2022. It was Telestream’s 13th and last acquisition and made with lead lender Fortress Investment Group. The two principals took senior leadership positions across Telestream’s cloud initiatives. Transaction details were undisclosed.
In 2021, Genstar moved to sell Telestream but reportedly failed to get beyond the second round of funding.
In early 2023, having guided five acquisitions in quick succession since 2020, Castles stepped back to be replaced as CEO by Rhonda Bassett-Spiers. She previously ran iTradeNetwork, a company in the perishable food industry.
Bassett-Spiers was herself replaced in fall 2024 with Castles rehired to CEO.
On June 7, 2025, Telestream enacted a corporate restructure, moving assets into a new entity called Telestream 2 LLC.
Genstar Capital is a San Francisco-based PE firm with $50 billion of assets currently under management.
Headquartered in New York, Fortress is an investment firm with $51 billion of assets currently under management. It is owned by Abu Dhabi state owned bank Mubadala. Its website states, ‘We cultivate lasting trust by developing relationships grounded in honesty, integrity, and time-tested results.’
Interview with Greggory Heil
Streaming Media spoke with Heil and the following is his version of events beginning with the 2022 buyout.
“Dan presented himself as just a great guy,” Heil says. “I knew all the founders of the 12 other companies that were acquired as part of the Telestream family and they were respected in the industry. There was a kind of old school anti-Silicon Valley startup mentality that was attractive to me because I cared a lot about what we had built with Encoding.com and we wanted to make sure it was in good hands.”
Greggory Heil
Shortly after the acquisition Bassett-Spiers was brought in by Genstar. “That was a bull-in-a-china-shop operation,” Heil says. “They fired hundreds of people, tried to redo the branding and product and package it up for sale.
“Rhonda brought her team with her who were very bright and SaaS savvy but knew nothing about the video tech industry. The company struggled. The lenders to Telestream [led by Fortress] stepped in very aggressively, got rid of Rhonda, and foreclosed on the company. They converted their debt that they had to the company into equity and took over the company.”
This is the point at which things turned south for Heil and Malkin.
“They fired us ‘for cause’ to avoid having to pay our employment for the rest of our earnout. It's a nasty move, but it's a move.”
Heil and Malkin challenged the action. Their initial filing in 2023 alleges that the plaintiffs were terminated ‘for cause’ without documentation to avoid payment obligations.
“Firing someone ‘for cause’ in America is extremely difficult,” Heil says. “You literally have to drive a car when drunk into the side of the building or do something equally egregious and you have to have it documented. But that wasn't the case at all. There was no warning. It was purely financially driven. They thought, we can save some money and tie these guys up in court until we sell the thing.”
What happened next, according to Heil, is that the company withheld roughly 30% of the purchase price agreed for Encoding.com.
“They said we didn't meet some borrowing condition. Or ‘go screw yourselves’ basically,” he says. “So now we have to fight that one too.”
Their suit was amended to allege that Telestream withheld final earnout payment owed to the founders due to borrowing conditions.
Then in June the company restructured in a way that left the Encoding.com founders fuming and willing to take the battle public.
“The messaging to employees and to customers was that this is just a routine asset allocation. Just a little restructuring. Nothing to see here, folks. In reality, they took everything of value out of Telestream 1 and left just the Encoding.com debt and the employee debt. So, really, it’s just Jeff and I and the Encoding.com shareholders left in Telestream 1 with just a little bit of their own debt as cover.”
Encoding.com shareholders alongside Malkin and Heil include Angel investors Harmonic and Rackspace Technology.
“This is a classic case of investment bankers, PE firms and their lawyers getting together and scheming to get away with one to save money in a legal path without ever stepping back and thinking, ‘How are customers feel about this? How will our employees feel about this? What's really the narrative here?’”
The case is about to enter Discovery where Heil hopes to find some answers.
“It appears to be a very targeted asset transfer where they kept what they wanted and isolated us strategically and on purpose.”
His post about the action on Linkedin – his second in four years (the first of which was for winning a technical Emmy) - has been viewed over 20,000 times.
“Customers have called me. Employees have called me. Some employees have quit because they feel misled. I’ve kept quiet in large part because I respect the people who work there but this is so egregious I think it's important for people to know.”
“Maybe we fight this successfully, maybe not. We’re going up against Goliath here. Fortress knew this lawsuit was coming and we're just these little guys but it's a cautionary tale for other founders that are going to sell to Private Equity that might have a similar deal structure in place. Maybe you think twice about what's promised to you contractually when [PE] have a whole hidden playbook to get around those contractual obligations.”
The suit reads:
Plaintiffs allege the transfer was pre-planned with Telestream’s lenders to isolate those liabilities. The structure mirrors a fraudulent transfer under California law, designed to hinder recovery by former executives.
“You make your decision as a founder based on what you see you,” Heil says. “You spend all this time and money with legal negotiating a contract. You base your assessment on whether or not to sell based on what you think you're going to get contractually. If they have a whole playbook to enact that not only makes you spend hundreds of thousands of dollars in court just to get all of what is due, then I hope this is a cautionary tale.”
He says he and Malkin have to prove in court that Telestream 2 is a continuation of Telestream 1 because their original suit was against Telestream 1.
“A lot of times when companies do this, they set up a new brand, a new management team and a go-to-market strategy and product portfolio. They could have done that but instead they tried to do this in the quiet of the night and say to the public that everything's rock solid. Telestream employees and customers had to sign a new contract with Telestream 2 but it's the same business. Then in a courtroom, they are basically arguing that it's not the same business.
“It's crazy. Do I have to make an exhibit of the IBC booth showing that they have the same booth in 2025 as they did in 2024? It’s so silly, but the court doesn't know about our industry and what's going on. Telestream 1 is just an empty shell now. There's nothing there except debt. It's just putting another hurdle in front of us in order for us to get our employment claims.”
Their complaint was amended a third time to accuse Telestream of fraudulent transfer and successor liability of continuation of business operations. The discrepancy in Legal vs. Public Narrative in relation to Telestream 1 and Telestream 2 is described in the suit as a ‘contradiction that is central to concerns over transparency and fairness.’
“We're accusing them of something that is illegal but the mountain that that puts in front of you to try to prove is the real issue. They know that we're small guys. They know they're in the wrong, but they also know it's this huge legal mountain for us to come fight them.
“They did this ‘non judicial’ asset grab to avoid the public bankruptcy process. Non-judicial means it happens overnight with no oversight and no accountability. That's why they took this risk against us. It’s got to the point where I think people need to know what happened.”
Asked about his feeling towards Castles and Heil is conflicted.
“I think he was in a difficult position. He did everything he could to avoid bankruptcy and talk the lenders [Fortress] out of bankruptcy. He was successful in a way but then it put him in this position of doing something that's a little bit shady of targeting certain creditors. I do think he's complicit in this. The previous CEO had put the company in a bad place. He comes in, brings back the old management team, stabilizes the ship, goes around on an apology tour to everyone saying ‘we're back at the helm’ - and those are all great things. I understand that the lenders are his boss but the way he handled this was not ethical.”
Telestream right to reply
Streaming Media reached out to Genstar Capital and Fortress for comment and received no reply.
Telestream did send us back a statement, quoting a spokesperson:
“We cannot comment on matters related to individual employment or investment. We can confirm, separately, that on June 7, Telestream completed a recapitalization transaction, which has significantly strengthened the Company's financial position for the benefit of our stakeholders. We're pleased to be on the other side of that effort, which has left us better positioned to support our customers and employees and to serve the industry going forward.”
A court date is set for January.
Related Articles
Streaming Media Contributing Editor Jan Ozer interviews Telestream President & COO Jon Wilson about Telestream's acquisition of Encoding.com and its implications for Telestream and the streaming industry at large.
20 May 2022
Genstar Capital purchases Telestream for an undisclosed sum, with an eye on increasing revenue for the already-profitable company
07 Jan 2015
While it delivered impressive results in our tests, Encoding.com isn't perfect: Read our review before paying extra for Turbo mode.
19 Aug 2013