Infospace Officers Hit with Lawsuit
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Seeking recovery of a sum approximated by lawyers at Sitianni & Youtz to be $2 billion in actual damages, an InfoSpace stockholder has filed suit in the Superior Court of Washington for King County against present and former officers and directors of InfoSpace.
The "Shareholders Derivative Suit," filed on March 19, 2001, seeks recovery directly for InfoSpace.
According to attorney Steve Sirianni, such a suit is brought when a company has claims against its own management. Because officers and directors are generally reluctant to authorize a suit against themselves, a non-insider shareholder can make claims "derivatively," in behalf of the company.
The Seattle lawyer alleges that the $2 billion figure, which was not cited in the original filing, is the actual amount that will be sought in compensatory damages. The damages have been broken into two parts.
The first area of the damage, totaling $1.5 billion, is the cost of the Go2Net acquisition. The suit alleges that company officers and directors knew that Go2Net had little or no value to InfoSpace, and that they only approved the merger to create the impression that InfoSpace's business and market share were burgeoning. The complaint further states that officers and directors improperly sold millions of shares of InfoSpace stock in late 2000 and early 2001, knowing the merger had failed but before disclosing this fact to regulators or to the investing public.
"(InfoSpace CEO and Chairman) Naveen Jain was all over the press explaining what a terrific acquisition (Go2Net) was, and it seems to us that he knew there was no future in the advertising business that Go2Net brought to the company," said Sitianni.
The lawsuit contends that the remaining percentage of the $2 billion figure stems from allegations that starting in 1999, officers and directors dumped InfoSpace stock, realizing $500 million in profit.
The suit further claims that several present and former officers and directors of the company jeopardized "pooling of interests" accounting treatment for InfoSpace's mergers with Go2Net, as well as with Prio, a California-based e-commerce company.
To maintain pooling of interests accounting treatment for mergers, officers and directors of the merging entities must refrain from selling their stock for a specific period of time. However, several of the officers and directors sold large quantities of stock during the restricted periods, while other officers and directors did nothing to prevent such sales.
Steve Stratz, Public Relations Manager for Infospace, refuted the claims, stating: "Today's announced suit is derivative in nature. It does not seek monetary damages or equitable remedies from Infospace, Inc. We are currently investigating and assessing the claims at issue and preparing our response."