(Bloomberg) -- All.health Inc., a medical care startup that rose from the ashes of once-hot wearable company Jawbone, is being sued in San Francisco by one of its investors for alleged fraud, misrepresentation and breach of contract. All.health’s co-founders, the former Jawbone Chief Executive Officer Hosain Rahman and Michael Luna, are also named in the complaint. While All.health, Rahman and Luna deny the claims, the dispute is an illustration of the rancor that can envelop fledgling tech companies at a suddenly volatile time for startup funding.

Jawbone was a Silicon Valley darling — most famous for its wireless earpieces — until the startup dramatically folded in 2017 and sold off its assets. As Jawbone was disintegrating, Rahman salvaged the company’s medical device business. The resulting startup, now called All.health, developed wearable monitoring hardware and technology for people with chronic illnesses like diabetes.

In a complaint filed this summer, Polymath Holdings, a Dubai-based investment company and All.health backer, claimed that the startup overpromised, took millions of dollars and under-delivered on a commitment to manufacture thousands of health-monitoring devices. The suit, which was recently largely unredacted by a San Francisco court, alleges that the startup was a “classic ‘fake-it-until-you-make it’ tale of fraud.” 

Michael Sitrick, a spokesman for All.health and its founders, disputed Polymath’s claims, calling the lawsuit “replete with false statements and misleading information.” Sitrick also said that All.health’s technology and products worked and were delivered as expected. “No fraud was ever committed by All.health,” he said. 

Rahman’s career has been characterized by high drama and big checks. At Jawbone, he raised more than $900 million from Silicon Valley’s biggest names and assembled a board that included Andreessen Horowitz’s Ben Horowitz, Khosla Ventures’ Vinod Khosla and Sequoia Capital’s Roelof Botha. Jawbone made a splash in 2011 when it released a wristband crafted by industrial designer Yves Béhar, famous for his work on the Snoo bassinet and Herman Miller office chairs. However, customers complained about the wristband’s reliability, and Jawbone pulled the device from the market and attempted a relaunch the following year. The company stopped making its consumer product after laying off staff and struggling to make a profit.

The year after Jawbone fell apart and he started his new venture, Rahman sat for an interview with tech journalist Kara Swisher. Rahman said Zynga Inc. co-founder Mark Pincus and Instagram co-founder Kevin Systrom were among the backers of the startup, along with Dubai-based investment group Meraas. “I think it’s hard to get a second chance,” Rahman told Swisher in 2018. “I mean, we were fortunate.” 

The startup drew significant funding. According to a Securities and Exchange Commission document from 2019, Rahman raised at least $65 million for the company. 

According to the complaint, when Rahman approached Polymath about an investment in the company, he said its technology was “deployment ready.” In 2019, Rahman secured a $2.5 million investment from the group. Around the same time, Polymath Managing Director Ali Hashemi co-founded a company called GluCare Integrated Diabetes Center LLC. GluCare planned to use All.health’s monitoring and managing technology, the complaint said. And Polymath believed that All.health could also benefit from GluCare’s business.

But the relationship eventually went downhill after a cash-strapped All.health failed to deliver on its promises, according to the lawsuit.

By the end of 2019 All.health’s cash reserves were mostly gone, Polymath alleges, and the startup had a burn rate of $1 million a month. Facing money constraints, Rahman struck a licensing deal with a Polymath affiliate to pay All.health more than $10 million in upfront licensing fees, the complaint said. In exchange, All.health agreed to provide wristbands and software licenses for its heartrate monitoring and health-tracking tools.

In August 2020, GluCare wanted to roll out All.health’s technology, but the company wasn’t ready, the complaint said. After Rahman and his co-founder Luna said the startup would need more cash to fix the problems, Polymath invested another $3.97 million. 

On social media, the companies appeared to be in alignment. In a 2021 LinkedIn post highlighting a local news article, Polymath’s Hashemi cited GluCare’s accomplishments, crediting “our friends over at All.health.”

But in 2022, Polymath’s complaint said that had All.health underdelivered on its commitments. All.health supplied only 704 wristbands after promising licenses for 28,572, the suit said, and the wristbands it did deliver reported “grossly inaccurate” data — in many cases failing altogether within a few months. All.health denies this characterization.

The “allegations bear no resemblance to the truth,” said Chris Farmer, a company director and investor in All.health. “I have used it myself and it works.” Sitrick, the All.health spokesman, disputed that the products failed other than experiencing initial glitches and bugs.

Sitrick said that the software licensing agreement was aimed at seeding All.health’s technology broadly in the United Arab Emirates, not just at GluCare. He also said that the 28,572 figure was a placeholder number to be met depending on demand, and that All.health provided enough bands to meet GluCare’s patient forecasts. 

Farmer, a partner at venture capital firm SignalFire, said that All.health was itself frustrated with Polymath and with Hashemi, who served a dual role as an All.health board member and an All.health customer thanks to his role at GluCare. The other board members believed this might pose a conflict of interest, Farmer said, an allegation Polymath denies. Sitrick said that eventually the four-member board, including Hashemi, voted to form an executive board committee, comprised of three board members without Hashemi. That three-member committee has held meetings over the past year, Sitrick said, but the full board has not met in several months.

Other All.health investors include San Francisco-based health care fund Transformational Healthcare Venture Capital, which invested at least $15.5 million in 2020, according to documents attached to the complaint. “We are pleased that All.health has the potential to make a positive impact in the health care industry," Darren Hite, founder of THVC, said in an email. SignalFire invested more than $10 million, Farmer said. 

All.health’s board consists of THVC’s Hite, along with Rahman, Farmer and Hashemi, who remains a director. 

The case is Polymath Holdings v All Health Inc., CGC22600970, California Superior Court, San Francisco.

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