Ex-InfoSpace chief ordered to pay $247 million penalty
Seattle Times staff reporter
In the largest award of its kind, a federal judge yesterday ordered former InfoSpace chief Naveen Jain to pay $247 million to the company he founded as penalty for illegal insider trading.
It was a stunning blow for a man who at one time ran one of the most successful dot-coms and was among the richest men in the world.
Attorneys for the shareholder who brought the lawsuit say that they will begin seizing Jain's assets in two weeks, seeking the help of law enforcement. Jain's holdings include two yachts, $30 million in InfoSpace stock and a piece of the Seattle SuperSonics.
"We're going to seize whatever assets we can find, whether they be yachts, rugs, coin collections or safety-deposit boxes," said Steve Sirianni, one of the attorneys for the shareholder.
Jain owns a mansion in Medina and another on Mercer Island, but those properties can't be seized immediately.
Jain can only stop the seizure by putting up a bond worth $247 million, Sirianni said.
"We're certain a bond will be in place and no assets will be seized," said Val Tollefson, one of Jain's lawyers.
It's not clear what Jain's net worth is today and Tollefson said he didn't know.
During the dot-com craze, InfoSpace, a Bellevue-based Internet and wireless-service company, was among the greatest successes on the stock market. At its peak, InfoSpace was worth more than Boeing. Jain had more than $8 billion in InfoSpace stock alone in March 2000, when it hit $130.50 a share. But in July 2002, shares were less than $1.
While he ran InfoSpace, Jain sold more than $400 million worth of the company's stock. But he has said that he lost some of that money in bad investments.
Jain called the judgment against him and his wife, Anu, "unfounded and unfair. Our family now faces enormous liability for something we did not do."
He plans to appeal.
"This case is not about insider trading, which obviously didn't occur, but about the plaintiff and InfoSpace trying to create fictitious purchases so they can line their pockets at our expense," he said.
InfoSpace fired Jain in December and later filed a lawsuit accusing him of breaking an agreement with the company by starting a competitor, Intelius.
InfoSpace had little comment yesterday.
"We're a bystander in the case," said InfoSpace spokesman Adam Whinston. "This order may be appealed and the outcome of any appeal is uncertain."
Thomas Dreiling, a small shareholder, brought the lawsuit under the Securities and Exchange Act of 1934 that makes it illegal for company insiders to both buy and sell stock within a six-month period.
The law is intended to prevent company officers and directors from making quick profits from insider information.
The case centered on the Jains taking control of stock they had given to trust funds for their children in 1998 and 1999. They later gave the shares back to the trusts.
U.S. District Judge Marsha Pechman ruled last May that by taking control of that stock, the Jains were in essence "purchasing" it for nothing. During that same period, Naveen Jain sold $202 million worth of stock.
Dreiling collects none of the award, although his attorneys say they will ask the court for a reasonable piece of it. Most of the award is to go to InfoSpace; if it is paid in full it would nearly double that company's cash.
Dreiling asked InfoSpace to pursue the case for him at first, but the company declined. Recently, however, representatives of the company asked the judge to give them control of the case.
Jain argued that he didn't intend to take control of the trusts and blamed others for the mistake.
Pechman responded in her ruling, "The Jains claim that they were victims of a combination of errors and oversights by others. Nonetheless, without the participation of the Jains, the purchases would not have happened."
Pechman had the discretion of not ordering Jain to pay $45 million in interest but decided to because he was not diligent in avoiding the legal problem and did not offer to repay the money, the judge said in her ruling.
Earlier this week, Jain filed a lawsuit against InfoSpace's 13 liability-insurance companies, seeking to have them pay the $247 million judgment.
Until yesterday, the largest award for this type of insider trading was $20 million in a New York case in 2000.
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