Former Juul executive sues over retaliation, claims company knowingly sold tainted nicotine pods

Kevin Burns, then-CEO, JUUL, left, and CNBC's Carl Quintanilla

Source: CNBC

When e-cigarette market leader Juul removed its popular sweet flavors such as mango and creme from stores last year, co-founder Adam Bowen said publicly the company was willing to take a cut in sales to "do the right thing and prevent underage use."

The conversation at Juul's San Francisco headquarters, though, was far different.

"You need to have an IQ of 5 to know that when customers don't find mango they buy mint," then CEO Kevin Burns told employees, former senior vice president of finance Siddharth Breja alleges in a wrongful termination lawsuit against the company filed Tuesday.

The company allegedly had research from consulting firm McKinsey & Co. that showed customers would purchase mint instead. And that's exactly what happened, according to Breja, who was fired in March. Sales of mint pods surged after the sweet flavors were removed from stores. Mint pods accounted for about two-thirds of Juul's total pod sales in February 2019, up from about a third the previous September, the lawsuit alleges.

The lawsuit documents a culture of intimidation at Juul, which was formed in 2015 and quickly grew into a market leader, accounting for about half of the industry's market share this year. Breja, who claims he was fired in retaliation for sounding alarms at Juul, says the company knowingly sold at least 1 million contaminated mint-flavored pods and refused to recall them.

Breja alleges that Burns took a "win-at-all costs" approach to running Juul, telling employees who challenged him that there could "only be one king at Juul," and that "king" was him. Burns allegedly once told Breja and other executives to "tell that motherf----- that I'll take him out of the room and shoot him with a shotgun if he challenges my decisions."

Juul was so intent on meeting demand for mint pods that company leaders put pressure on the company's supply chain team and its suppliers, including Alternative Ingredients, Inc., Breja alleges in the suit. At an executive team meeting in March, Breja learned that about 1 million mint pods were contaminated and being sold to customers, according to the lawsuit.

Juul spokesman Ted Kwong called Breja's claims "baseless," saying in a statement that Juul will "vigorously defend this lawsuit."

"The allegations concerning safety issues with Juul products are equally meritless, and we already investigated the underlying manufacturing issue and determined the product met all applicable specifications," Kwong said.

Breja says Juul refused to notify consumers or issue a recall and that he protested those decisions. He says he also suggested that Juul include expiration dates or the date of manufacture on pods to warn consumers of using pods that were more than a year old.

"Half our customers are drunk and vaping like mo-fo's, who the f--- is going to notice the quality of our pods," Burns allegedly said in response.

Breja alleges that Tim Danaher, then chief financial officer, was angered by his suggestions. He alleges that Danaher questioned Breja's "financial acumen," since the suggestions would lead to "billions of dollars in lost sales, a tarnished company image, damage to Juul's brand reputation, a significant reduction in Juul's valuation" and could jeopardize Juul's regulatory approval process with the Food and Drug Administration.

Danaher has since "asked to transition out of the company" and has been replaced by Guy Cartwright, the company said Tuesday. On Monday, K.C. Crosthwaite, who replaced Burns as CEO last month, sent an email to employees announcing Danaher's departure.

Breja was fired from Juul in March, less than a year after he joined the company. Juul at the time told Breja he had lied, claiming he was chief financial officer at Uber, his previous employer. Breja claims he did not say that, instead telling Juul he operated as the CFO of a division of Uber.

"He was terminated in March 2019 because he failed to demonstrate the leadership qualities needed in his role," Kwong said.

Burns, Danaher and McKinsey did not immediately respond to CNBC's requests for comment.

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