Former longtime workers of The Knot have accused the marriage large of defrauding traders and advertisers to land a $1 billion sale in 2018. Years later, with a doable IPO looming, Forbes discovered some troubling practices stay.
By Alexandra S. Levine and Richard Nieva, Forbes Workers
Ata Potbelly sandwich store on Fulton Avenue, decrease Manhattan bustling on a February day in 2017, Jennifer Davidson sat listening to her rattled, soon-to-be former colleague inform her about chaos on the marriage ceremony planning large the place they labored, The Knot.
The worker, who’d tendered her resignation days earlier, detailed to Davidson explosive allegations of widespread fraud perpetrated towards among the firm’s largest advertisers. With out shoppers realizing, she and her teammates had been ordered by higher-ups to enter inner methods to quietly change the phrases of profitable contracts The Knot was failing to ship on, Davidson remembers the worker telling her.
Davidson, who’d labored at The Knot for greater than twenty years, most just lately as its world vogue director, stated the allegations echoed issues she herself had witnessed. She’d discovered proof of different troubling practices as nicely—taking place each when The Knot, based in 1996, was a public firm (below father or mother XO Group) and as negotiations had been underway for a virtually $1 billion sale to a pair of personal fairness companies in 2018. Main companions like Macy’s and David’s Bridal had been spending tens of millions of {dollars} a yr on among the most dear advert actual property on The Knot when this stock didn’t at all times exist, and executives had then despatched workers scrambling behind the scenes to seek out someplace to place the advertisements or alter the unique agreements altogether, in response to Davidson. A number of of the contracts that she’d personally overseen, together with with big-name vogue homes like Attract, Justin Alexander, Maggie Sottero and Kleinfeld Bridal (of “Say Sure to the Gown” fame), had been modified discreetly with out telling the shoppers, she stated. And tech glitches plagued The Knot so recurrently that advertisements distributors had paid for would inexplicably disappear from the positioning or by no means run in any respect, she added.
“These shoppers trusted us with their invaluable advertising {dollars},” Davidson informed Forbes. “For a lot too many, we promised a Ferrari however we confirmed up in a rickshaw.”
“All of this simply appears so intense for an organization that is a marriage firm. It isn’t like chemical weapons.”
Rachel LaFera, an 18-year Knot veteran who was most just lately director of high quality jewellery, stated a second subordinate detailed to her how she too had been directed by senior administration to change shopper contracts and “how pervasive it was.” One other longtime senior worker, who left The Knot this yr, informed Forbes two extra workers had confided in her the identical—that an govt had compelled them to improperly change numbers and falsify reporting for nationwide promoting, which in flip might have projected to Wall Avenue a rosier image of income than was the fact. And throughout the corporate in a distinct division, nonetheless one other current staffer informed Forbes individuals targeted on engineering, product and design recurrently face comparable calls for to cross moral traces at present. (Greater than a dozen individuals who’ve labored at The Knot because the 2018 sale expressed comparable considerations.)
“The tradition of senior individuals standing over [us] and saying ‘do that or else’” was not unusual, stated the worker, who left this yr. “It was all to drive the underside line.”
Tim Chi, CEO of The Knot Worldwide, stated in an announcement that “we take these allegations extraordinarily significantly and don’t tolerate fraudulent practices, misconduct, or retaliatory conduct of any variety.”
“The claims made by former XO Group workers had been extensively investigated in 2017 by each inner and exterior counsel,” he stated. “All claims of widespread misconduct had been unsubstantiated. Our unbiased auditor for over 20 years, Ernst & Younger, LLP, has decided The Knot’s monetary statements precisely symbolize the working outcomes of the enterprise, in all materials respects, for yearly since 2001.” The Knot’s house owners, Permira Funds and Spectrum Fairness, declined to remark. The whistleblowers responded that “XO Group didn’t carry out a ‘thorough investigation’ of our claims, a lot much less one which was unbiased, clear, and dedicated to the reality of the reported misconduct of a then publicly traded firm.”
Justin Alexander informed Forbes it has requested The Knot for an audit of the final six years of its promoting. Kleinfeld stated it had not been conscious of points on the time. Macy’s, David’s Bridal, Attract and Maggie Sottero didn’t reply to a number of requests for remark. Chi, the CEO of The Knot Worldwide, stated in his assertion that “our companions are the center of our enterprise, and we solely succeed after they succeed. It is my precedence to protect their belief, whereas sustaining our secure and clear work setting.”
‘The Irony Of The Knot’
The Knot has lengthy been probably the most in style on-line locations for brides and grooms to seek out inspiration and distributors, and create web sites and present registries, for his or her weddings.
However examination of presidency filings, public information and inner firm supplies; evaluations of hours of audio recordings and a trove of textual content messages; and conversations with two dozen present and former Knot workers, advertisers and distributors, and authorized and enterprise consultants reveal an organization struggling to carry its floor. Within the wake of the pandemic, and going through stiff competitors from upstarts like Zola and tech titans like TikTok, Instagram and Google—which have made it straightforward for {couples} to seek out distributors immediately and threatened to chop out the intermediary altogether—many say The Knot has devolved right into a dog-eat-dog, money-at-all-costs enterprise that defies the feel-good nature of marriage ceremony celebrations and pressures workers to cross moral traces.
“That is the irony of The Knot: it has a really festive facade,” stated the longtime senior worker who just lately departed, describing what she known as a tradition of worry and intimidation.
“All of this simply appears so intense for an organization that is a marriage firm,” she added. “It isn’t like chemical weapons.”
Davidson stated that when she and her friends escalated their considerations again in 2017—together with their beliefs that The Knot was counting income for companies it hadn’t but or would by no means ship, and deceiving traders—they went unanswered and led to retaliation and authorized threats. That prompted a number of of them to convey issues to the board, and later, to the Justice Division, Securities and Trade Fee and Federal Commerce Fee.
The whistleblowers embody Davidson, LaFera and Cindy Elley, an account govt who left The Knot in 2021 after 19 years. (Elley and Davidson are sisters.) The ladies have alleged The Knot—the place they labored for a mixed six a long time—has been committing monetary fraud for years and that executives “accelerated income” and orchestrated “a textbook pump and dump” to drive up the corporate’s inventory value earlier than it was bought for nearly $1 billion and merged with rival WeddingWire in 2018. (They stated the alleged fraud, a few of which was first reported by The New York Submit, has occurred in Native and Nationwide, the divisions that drive essentially the most income and the place all three girls had labored. Gross sales there have been “dysfunctional and overstated,” they declare.)
“They purchased a crock of shit.”
“I am unable to consider that they haven’t come after them—the WeddingWire individuals,” a former prime govt at The Knot stated this yr in audio obtained by Forbes. “They purchased a crock of shit.”
“Getting out was the very best factor I might’ve completed,” stated the chief. “I’d’ve been on the chief crew, so in the event that they ever did get caught, I’d’ve been a part of it.”
The whistleblowers—who first detailed their experiences in an essay on Lioness, a platform that helps insiders come ahead with tales within the public curiosity—informed Forbes they’ve gone to authorities with allegations of “ongoing violations of federal legal guidelines by each former and present firm administration.” The SEC and FTC declined to remark, and the DOJ didn’t reply to Forbes’ inquiry. Anni Jones, a spokesperson for The Knot, confirmed that the whistleblowers’ allegations prompted the U.S. authorities to research the corporate in 2017 and 2018—the identical time negotiations had been underway for XO Group’s eventual, big-ticket sale to Permira and Spectrum. However she stated the personal fairness companies had been nicely conscious, the probe was closed in 2019 (inside three months of the merger closing) and that no enforcement motion was taken. She added that federal regulators haven’t notified The Knot of any inquiry into its enterprise practices since then.
Nonetheless, the whistleblowers’ coming ahead, and contemporary claims from workers at present, might create obstacles as the corporate could also be beginning to eye one other potential IPO. Greater than a dozen present and up to date workers declare, and supplies and communications obtained by Forbes present, that as The Knot struggles to ship to the PE companies that now personal it, the corporate is deceptive marriage ceremony distributors about ROI to get them on board; climbing charges; placing the distributors on auto-renew and making it almost inconceivable for them to cancel their contracts. (The FTC in June introduced sweeping motion towards Amazon for allegedly doing this to lock clients into Amazon Prime; Amazon stated the company’s claims had been “false on the details and the legislation.”) Two individuals acquainted, and communications reviewed by Forbes, counsel The Knot could also be searching for tax writeoffs for firm tasks that some workers consider should not eligible for such breaks.
Sean McKessy, the primary chief of the SEC Workplace of the Whistleblower, stated that whereas he couldn’t touch upon The Knot particularly, these kind of claims could be of curiosity to the company.
“That is the bread-and-butter of what they’re purported to be there to implement,” he informed Forbes.
One Of The First Down The Aisle
Weddings have exploded into a virtually $70 billion trade within the U.S.—churning out some 2.6 million weddings a yr—and The Knot was one in every of its earliest digital pioneers.
The corporate was based in 1996 by husband-and-wife entrepreneurs David Liu and Carley Roney, and their companions Michael Wolfson and Rob Fassino, with $1.6 million in seed funding from AOL. Liu and Roney’s personal marriage ceremony in Washington D.C. had been a comedy of errors, and so they noticed a significant want for know-how that would assist {couples} navigate the planning course of start-to-finish in a manner that magazines merely couldn’t. And although individuals had been, on the time, not but shopping for issues on the web, the founders noticed in marriage ceremony registries a chance to be early to the web procuring craze.
Liu walked right into a pitch assembly with billionaire AOL bigwig Ted Leonsis with a duplicate of Brides Journal to make his case.
“I nonetheless bear in mind: He picks it up, brings it to his nostril and flips by means of the pages and goes, [sniff]: I don’t know something about this trade, however I scent cash,” Liu later recalled on NPR’s How I Constructed This.
Within the years after the web large threw its weight behind The Knot, what started as an early social community—the place {couples} might crowdsource details about weddings by means of chatrooms—developed into a marriage planning portal, on-line present registry and ad-backed e-commerce hub. The founders rapidly gained the assist of marriage ceremony robe trade icons like Kleinfeld Bridal CEO Ronnie Rothstein and JLM Couture CEO Joseph Murphy, whose firms grew to become a few of The Knot’s first and most loyal vogue advertisers. In interviews with Forbes, each praised the unique crew and product and stated it was, on the time, a boon to their companies. Rothstein stated Kleinfeld got here to spend $400,000 a yr on The Knot.
“I used to be in shock that they bought it for what they did.”
The founders took the corporate public on the NASDAQ simply earlier than the flip of the millennium; scooped up rivals like WeddingChannel.com, run by Adam Berger (who’s now managing director of Perception Companions); and slowly grew their marriage ceremony upstart into an empire catering to main life milestones. Past the massive day, The Bump would assist {couples} beginning a household and The Nest would assist them construct a house. These and several other different manufacturers had been finally introduced below an umbrella named XO Group, helmed by CEO Mike Steib and staffed by tech expertise that may later maintain prime positions at TikTok, Meta, Peloton and Vimeo. (Mark Zuckerberg’s brother-in-law is a former govt vp.)
“We had been by no means doing this for the cash,” Liu stated on NPR. “We by no means thought [of] the phrase ‘exit.’ ‘Exit’ wasn’t a part of our vocabulary.”
Six months after the podcast, XO Group was bought for almost $1 billion to personal fairness companies Permira Funds and Spectrum Fairness. It was taken personal and merged with rival WeddingWire—which Permira majority-owned—to kind a brand new three way partnership known as The Knot Worldwide, a linchpin serving what the companies estimated to be a $250 billion world marriage ceremony trade. It might stack its board with tech heavyweights like the previous president of Instacart, CEO of Reserving.com, CFO of Zillow and president of U.S. Information & World Report. (Liu didn’t reply to a request for remark.)
Rothstein, the Kleinfeld CEO, stated the value tag was “unbelievable”: XO Group bought at $35 per share, virtually double the inventory value a yr earlier and significantly greater than the place it had hovered because the formation of XO Group in 2011.
“I used to be in shock that they bought it for what they did,” stated Rothstein. “I simply do not perceive what the story was that they had been telling that obtained an investor to place up that type of cash, as a result of for us, and for among the designers that I spoke to, The Knot had misplaced numerous their effectiveness.” Kleinfeld at present spends a fraction of what it used to on The Knot, relying extra on social media.
Some workers informed Forbes that the success executives had been touting publicly to the board and traders didn’t at all times jibe with what workers had been seeing behind closed doorways. One former gross sales worker who left in 2020 after virtually 8 years recalled how when “all hell broke free” in 2016—a yr when the corporate switched to Salesforce and tried to launch a now-defunct “concierge” program to assist usher {couples} by means of the marriage planning course of—management painted a distinct image to the surface.
“The earnings name was like, ‘We had a little bit little bit of a bumpy begin, however every thing’s smoothed out, we’re doing nice, we’re promoting, we’re transferring ahead, we have got plenty of shoppers which are stepping up,’ similar to, every thing is ok,” the particular person stated. “And it wasn’t.”
“For those who tally up an image, it looks like shady administration, earlier than and after the acquisition.”
The particular person, who claimed to have left The Knot over moral considerations, added that what they had been seeing was greater than only a firm in disarray: “There have been particular individuals actively altering knowledge, in additional methods than one, to make it appear to be the corporate was doing higher than it really was for the American dream: to promote the corporate, to money in in your cash, your shares, your revenue and transfer on.”
Jones, the spokesperson for The Knot, stated the corporate is audited yearly by Ernst & Younger and that it makes use of sturdy inner and exterior controls to make sure the accuracy of its promoting knowledge. Ernst & Younger didn’t instantly reply to a request for remark.
Simply Married
Some at The Knot earlier than and after the deal in 2018 stated they’d characterize WeddingWire’s acquisition of XO Group as a hostile takeover. (Inside paperwork present workers had been additionally instructed to downplay to clients the antitrust implications.) WeddingWire’s cofounder and longtime CEO Tim Chi was made CEO of The Knot Worldwide, and most of The Knot’s C-suite was gutted. From prime to backside, workers who’d made noise about or had information of the alleged fraud had been pushed out, in response to the whistleblowers. The Knot didn’t reply to a query about whether or not individuals who’d raised considerations about potential wrongdoing had been compelled out earlier than, throughout or after the sale. However Jones, the Knot spokesperson, stated firm coverage prohibits retaliation towards workers who report considerations and that they’ll accomplish that anonymously by means of The Knot’s compliance hotline.
Acquired a tip about The Knot? Attain out securely to reporter Alexandra S. Levine on Sign/WhatsApp at (310) 526–1242, or e-mail her at alevine@forbes.com, and reporter Richard Nieva at rnieva@forbes.com.
The whistleblowers have additionally questioned the due diligence completed on the 2018 deal, elevating considerations that XO Group was acquired partially primarily based on what the corporate described as “private, unaudited monetary forecasts” that had been “subjective in lots of respects.” They allege that occurred though a yr earlier than, in 2017, XO Group had been compelled to reveal publicly that there had lengthy been loopholes within the numbers it was reporting to the SEC and traders. (Outdoors auditor Ernst & Younger found a “materials weak spot” when reviewing how the corporate had been counting income: “In our opinion,” the agency wrote in 2017, “XO Group has not maintained efficient inner management over monetary reporting.”)
In 2017, The Knot informed the SEC that these points had been due partially to the very downside whistleblowers Davidson and LaFera, the rattled worker who’d resigned, and the opposite subordinates had witnessed: the corporate had, actually, counted in its income cash from advertisers who didn’t get what they paid for, it disclosed in a submitting. The corporate stated the issue had occurred in The Knot’s Nationwide division, one in every of its largest turbines of income, however concluded that “the errors” in that key division had been “not materials” to the enterprise’ backside line—which means not a large enough deal that traders would care.
The next yr, in 2018, a bunch of traders filed a category motion lawsuit accusing XO Group of placing out a “false and deceptive” proxy that omitted essential monetary data related for WeddingWire’s acquisition of XO Group. (Such litigation will not be unusual in company mergers, and the swimsuit was voluntarily dismissed by the plaintiff.)
McKessy, the lawyer who constructed the SEC’s whistleblower program, stated whether or not a fabric weak spot would change the way in which an investor is considering investing in an organization is “so fully subjective.” However he famous that he would seemingly have questions on an organization’s unaudited financials, particularly if a current audit had discovered issues with its reporting.
Jones, the spokesperson for The Knot, stated the corporate and its personal fairness sponsors did in depth due diligence as a part of the merger course of and that The Knot “considers the 2017 matter completely investigated, concluded and immaterial to our enterprise.”
Promote It ‘With A Bunch Of Lies’
The Knot has downplayed the whistleblowers’ allegations by attempting to distance at present’s enterprise from that of its predecessors, noting that possession and management modified with the sale in 2018. However greater than a dozen individuals who’ve labored at The Knot because the merger declare some troubling actions persist there at present, speculating that the corporate is struggling to fulfill the calls for of its personal fairness house owners. Marriage ceremony distributors at present working with The Knot have raised most of the similar considerations, and The Knot had its accreditation with the Higher Enterprise Bureau revoked in 2020, the nonprofit confirmed.
“There are such a lot of crimson flags,” Daniel Keum, an assistant professor of administration at Columbia Enterprise College, informed Forbes. “For those who tally up an image, it looks like shady administration, earlier than and after the acquisition.” However it’s unclear if the corporate broke the legislation, he added.
One present account govt at The Knot, who has labored there for greater than a decade, claimed in current texts obtained by Forbes that the corporate is making it almost inconceivable for marriage ceremony distributors to cancel their contracts, and so they’ve hiked charges 30 % to juice income.
“All people’s on auto renewal; you possibly can have most cancers and you’ll’t get out of your contract,” they wrote within the messages. “Not solely do I’ve to promote, I’ve to deal with so many cancel calls, upset auto-renew calls, it is merely ridiculous. The ROI is the pits, and there is actually nothing you possibly can say to individuals. However I’ve to.”
“The method now’s new enterprise sells it with a bunch of lies,” they added in a textual content. And a former member of the account retention crew, who left in 2020 after almost a decade, stated salespeople had been instructed to inform potential shoppers verbally that they might cancel anytime, however then they’d ship a contract with completely different phrases to lock them in for a yr. (The Knot’s insurance policies state that distributors comply with an preliminary 12-month minimal time period; after that, the contract auto-renews on a month-to-month foundation. Prospects attempting to downgrade or cancel after that first yr are suggested to e-mail a helpline.)
Rhode Island marriage ceremony photographer Samantha Robshaw, a single mom of three, had been a loyal buyer of The Knot and WeddingWire for years earlier than attempting to cancel her contract when the pandemic successfully put her out of labor. She stated the corporate refused. “I used to be actually crying on the telephone,” she informed Forbes. “I used to be like, ‘I am unable to pay this $500 a month. I’ve youngsters to feed and a home to maintain. They usually simply had been like, ‘Yeah, that is a disgrace, sorry.’”
“As somebody who had paid them 1000’s and 1000’s of {dollars}, you simply would have thought that they might have been a little bit extra accommodating,” she added. “However they only actually, actually didn’t care.”
Marriage ceremony DJ Brandon Stray, proprietor of All About You Leisure in Cleveland, Ohio, stated The Knot refused to let him cancel when he knowledgeable them he’d been getting “zero ROI” and nothing however rip-off leads regardless of spending 1000’s on promoting, an enormous chunk of change for his small enterprise. He stated he needed to go to the intense of canceling his bank card to fend off The Knot’s expenses, however that they’ve nonetheless refused to take away his itemizing. Immediately, it reads: “WE DO NOT DO BUSINESS THROUGH THE KNOT OR WEDDING WIRE.”
“Out of all of the occasions that we do, none of them have come from The Knot—not one in every of them,” Stray informed Forbes, though The Knot, on its web site, boasts advertiser entry to “the biggest viewers of engaged {couples}, wherever.”
Shane McMurray, founding father of trade commerce group the Marriage ceremony Report, stated that whereas some distributors do get high quality leads from the platform, he estimates 60 % don’t. It has typically develop into much less efficient for distributors as a result of “the entire listing mannequin is dying,” he informed Forbes: Survey knowledge exhibits word-of-mouth suggestions, and web searches, are at present extra integral to marriage ceremony planning than web sites like The Knot and WeddingWire.
“As somebody who had paid them 1000’s and 1000’s of {dollars}, you simply would have thought that they might have been a little bit extra accommodating.”
Promoting points appear to have persevered after the sale with bigger companions, too. One former staffer, who joined the nationwide promoting crew after the sale and labored on million-dollar campaigns with top-tier shoppers David’s Bridal and Males’s Wearhouse, recalled how they purchased advert items in 2020 that by no means went stay. Neither firm responded to a request for remark.
However the alleged present-day points additionally seem to increase nicely past promoting. Two staffers informed Forbes, and communications present, that they’d been instructed to create documentation The Knot might use to obtain tax writeoffs that the employees didn’t consider it was really eligible for.
The documentation was associated to The Knot’s capital expenditures, or CapEx, that are funds spent on an organization’s bodily property, like tools or property. In some circumstances, R&D can even qualify. However some who’d been requested to doc and submit a yr of their artistic and design work as capital bills felt it misrepresented what they’d really been doing. (Analysts and traders typically have a look at CapEx to evaluate the monetary well being of an organization, and twenty years in the past, in one of many largest accounting fraud scandals in American historical past, WorldCom exaggerated its earnings by billions by improperly documenting its CapEx.) One former worker, who claims they’d been ordered to screenshot every thing they’d labored on inside that tax yr to submit as CapEx, described their division of The Knot as “corrupt as hell.” The Knot declined to touch upon the CapEx allegations.
One current vp of gross sales, who left The Knot final yr, lamented on an inner Zoom name that there’s a continuing tug-o-war between Knot workers and the PE companies pushing them to ever-greater limits so the companies could make a return on their funding. “Those that aren’t within the day-to-day, within the weeds, they don’t know what it’s like to speak to a vendor, they know nothing in regards to the marriage ceremony trade, they wrote a test, gave us some huge cash—finally, they’re our bosses on the finish of the day,” they stated in a recording obtained by Forbes.
A member of The Knot’s HR workers, who left in 2023, stated that during the last yr, the corporate has doubled down on making a living in any respect prices—an effort pushed by its new CMO who beforehand ran advertising for Uber. Whereas the particular person acknowledged workers’ widespread frustration with that shift, they spoke extremely of management and the way in which they’re steering The Knot by means of an ever-more aggressive local weather, namechecking Zola as a risk. Zola didn’t reply to a request for remark.
“So far as I used to be conscious, we weren’t in any kind of monetary hassle; we simply had been at some extent the place income grew to become crucial or extra vital than it had been,” they stated. “The concept was that that is momentary. It isn’t endlessly. However proper now, we actually needed to concentrate on making a living.”
The Street Forward
Many insiders say The Knot has by no means recovered from the billion-dollar sale and acquisition—at the same time as it could be angling towards one other IPO.
“They suppose that WeddingWire shopping for them was successful?” a former prime Knot govt stated this yr in audio obtained by Forbes. “They’re doing horrible… I don’t know what they’re going to do, however they’re going to have to boost cash. There’s no manner they’re making a living. I feel Zola is consuming them for lunch.”
One of many longtime senior workers who left this yr after virtually a decade stated The Knot at present is “actually struggling to remain related,” that it has “an enormous problem” with shoppers not desirous to renew their contracts and that it’s “scrambling” to seek out advertisers.
The whistleblowers’ accusations that The Knot has lengthy misled and defrauded advertisers are already prompting outcry within the trade. Longtime Knot advertiser Justin Alexander, a world bridal designer and producer courting again to the Nineteen Forties, emailed companies in its retailer community final week to say it was “deeply troubled” by the allegations.
“We hope The Knot will handle the claims extra on to convey extra readability to the state of affairs for all companions,” it wrote in its blast to the marriage world. “We consider in sustaining the best requirements of integrity and professionalism and this extends to all our companions, together with The Knot.”
