By now, most video industry professionals are aware of the lawsuit filed by Encoding.com founders Greggory Heil and Jeffrey Malkin against Telestream, the long-standing US media software vendor acquired by private equity firm Genstar Capital. Faultline can now reveal the full extent of what the founders claim is a calculated attempt to deny them tens of millions of dollars—a battle they admit could lead to financial ruin, but one they are adamant to fight.
Telestream, founded in 1998 as a pioneer in the video transcoding industry, acquired Encoding.com in mid-2022 for $40 million, with a further $15 million in deferred “Subsequent Consideration” promised by October 2023. Encoding.com, founded by Heil and Malkin in 2008, had grown into a revered cloud-based video and media processing platform, serving broadcasters, streamers, and studios migrating workloads to the cloud.
After the deal closed, both Heil and Malkin became heads of Telestream’s Cloud division. But the honeymoon was short-lived.
Faultline has learned the dispute is actually two intertwined legal battles. The first concerns an employment lawsuit against Telestream, which is headed for trial in February 2026. The second isn’t an official suit yet, as Encoding.com shareholders wait to file a claim for more than $15 million in deferred payments tied to the 2022 acquisition. A win on successor liability in the employment case would heavily support the latter claim.
The Playbook
“After the deal closed, Telestream withheld the final 27% of the purchase price, citing a borrowing condition they had structured to be impossible to meet,” Heil told Faultline. “To avoid paying us, they fabricated a ‘for cause’ firing—a legal playbook to kill our contractual rights and tie us up in court.”
On June 7, 2025, Telestream’s private equity owners Genstar Capital and Fortress Investment Group created a successor entity: Telestream 2. According to the complaint, Telestream 2 immediately absorbed everything of value—including intellectual property, engineering staff, customers, technology stack, brand, website, and even Telestream’s outside law firm—while leaving the original company (Telestream 1) behind as a hollow shell, saddled only with Encoding.com shareholder debt and the founders’ wage claims.
“This wasn’t bankruptcy in the classic sense,” Heil added. “Telestream had paid all its bills, bonuses, salaries, vendors, and law firms. The only thing left behind was our debt. It’s a complete financial playbook, down to the for-cause firing.”
Industry Fallout
Faultline will approach this the same way we did with last week’s highly-charged exposé on Ateliere Creative Technologies, by looking at what this bitter lawsuit means for customers and partners.
While the case has triggered hundreds of messages of sympathy and shock from Telestream customers, Heil remains cautious about the real-world industry ramifications.
This is because Telestream products—ranging from media processing and workflow automation, to video monitoring, editing, and hosting tools—are extremely sticky. While Faultline cannot comment on whether any customers will switch providers, we do know that none (as of writing) have jumped ship as a direct result of this lawsuit. However, given how much of this information is hot off the press, we would not be surprised if some Telestream customers were already looking elsewhere.
The trial is scheduled for January 2026 in a California court, which Heil believes will be a pivotal test of whether lenders can shield themselves from obligations using successor entities while continuing operations without interruption.
“We’re going up against Goliath. I know I could lose. I know I could get sued. I will take the hit. But if this educates other founders about the traps in private equity deals, it’s worth it,” Heil added.
While on paper the continuity between Telestream 1 and Telestream 2 looks obvious, one ominous sign that the case could swing against Encoding.com’s founders is that the finance world is unphased by the case. For them, this is just another day at the office.
Business Continuity Dispute
The crux of the case now rests on proving that Telestream 2 is, in practice, a direct continuation of Telestream. According to the complaint:
- Telestream 2 continues to operate in the exact same manner as Telestream, providing the same transcoding and cloud-based video processing services to the same customers, on the same terms and conditions.
- Telestream 2 produces, markets, and sells the same product lines historically marketed and sold by Telestream.
- Telestream 2 uses the same trademarks held by Telestream 1 and continues to claim copyright protections under the Telestream name.
- Telestream 2 conducts business through the same website previously operated by Telestream, with its policy documents still referencing “Telestream, LLC” — many of them dated before Telestream 2 even existed.
In other words, while the company insists Telestream 1 and Telestream 2 are separate legal entities, the plaintiffs (Heil and Malkin) argue the distinction is a legal fiction designed solely to avoid paying out.
Unethical or Necessary?
The complaint accuses Telestream of breaching employment contracts, violating wage laws in Colorado, Nevada, and California, and acting in bad faith. Heil informs Faultline that approximately $15 million in unpaid obligations are now closer to $20 million with accrued interest.
Telestream’s lenders, Genstar and Fortress, faced two paths:
- A public bankruptcy process, which would have treated all creditors—including Encoding.com’s founders and shareholders—on an equitable basis.
- A quiet Article 9 foreclosure, allowing them to hand-pick who got paid while moving all valuable assets into a new vehicle, Telestream 2.
They chose option 2. The result was that Telestream 2 took the staff, IP, customers, technology stack, and brand, while Telestream 1 was left behind as an indebted husk cast to the side of the road.
“That contradiction is the scandal,” Heil told Faultline. “They’re telling the market, customers, and employees that Telestream 2 is the same business, but in court, they insist it’s a completely unrelated entity.”
Among the stranded shareholders is video infrastructure heavyweight Harmonic, which had a sizable stake in Encoding.com. Heil calculates that the unpaid obligations now stand closer to $20 million with accrued interest.
“If they had just said, ‘we really need to cut costs, here’s a little less than you’re owed,’ maybe we would have accepted,” admits Heil. “But this was done under cover of darkness. I was misled to think the worst-case scenario was public bankruptcy. Instead, they orchestrated a non-judicial foreclosure—from one hand to the other—to sidestep us.”
After Heil finally decided to go public with a mic-dropping LinkedIn post, Telestream issued a cease-and-desist, claiming that his public statements were designed to create “market confusion.”
What’s Next
The plaintiffs are preparing their motion to prove that Telestream 2 is effectively a continuation of Telestream 1—and that the “change of control” required to trigger shareholder payouts never legally occurred.
Behind the legal wrangling lies lessons and warnings about allowing lenders to control deal terms.
“Founders are sometimes lured into taking stock options in lieu of cash at closing, but we deliberately avoided that trap. We chose to structure our deferred consideration as debt—a choice that should have protected us. Unfortunately, the parties in control opted for a more unethical route: engineering a transaction to make that debt disappear,” Heil told Faultline.