Updated

lawsuit.jpgThe saga at VSP Capital, the San Francisco venture capital firm founded by Joanna Rees-Gallanter, continues along a seeming path of deterioration.

Rees-Gallanter and her one partner ally, John Hamm, have sued two former partners, Matt Crisp and Vince Vannelli for breach of fiduciary duty. The firm’s latest 2005 fund has already fallen apart amid skirmishing between its partners.

VentureWire (sorry, sub req, and no link to story; though might be able to get it to you later) has the story about the lawsuit, filed in Superior Court in SF. It says Rees-Gallanter and Hamm allege the following:

…that Crisp and Vannelli have wrongfully used VSP’s facilities and time to engage in activities that were undisclosed, competitive and damaging to the firm.

“Defendant Crisp secretly conspired to launch a competitive venture capital fund while he and defendant Vannelli were employees of VSP, were being paid by VSP and owed a fiduciary duty to VSP not to compete with it,” the lawsuit said, adding that Crisp used VSP’s facilities to plan the new venture capital fund.

Meanwhile, PE Week’s Dan Primack reports (sub required) that the firm’s investors (called “limited partners”) have reached agreement with Rees-Gallanter and Hamm on how to manage the firm’s earlier second fund. They will earn a combined annual salary of $1 million, according to…

…an anonymous limited partner cited by Primack. While the salary is a discount from the original arrangement, it is still a source of frustration for the firm’s investors, according to Primack.

The $195 million second fund was raised in 1999, and still has about 20 active portfolio companies, including Palo Alto’s Danger, a wireless messaging and device company; AccountNow, a San Ramon online banking service and E4X Inc., a foreign exchange hedging service company.

Meanwhile, Hamm will continue to manage an investment in Truveo, a Burlingame startup focusing on targeted data mining, which he bought via a recent liquidation auction for that fund. Two other investments, Umbria Communications and Evil Twin Studios, were sold to undisclosed buyers.

Here is a link to our previous coverage of this tragic story.

Update: Here is the latest reporting by PE Week’s Dan Primack on the suit filed by Hamm and Rees-Gallanter. He says the suit is likely to backfire.