InfoSpace founder to appeal ruling on insider trading

Tuesday, 26 August 2003, 07:00 Hrs
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NEW YORK: Indian American entrepreneur Naveen Jain has called a federal court ruling asking him to pay $247 million as penalty for insider trading a "gross miscarriage of justice" and plans to appeal it.

Jain, InfoSpace founder and former Forbes' under-40 billionaire, was dumped by the firm in December. A federal court Friday asked him to pay what is considered the largest award in the history of judgments against short-swing trading.

"There has been such a gross miscarriage of justice against us and we were never given a chance to present our case in front of the judge because we had no hearing, no trial and no finding of fact," Jain told IANS.

He said he planned to appeal the judgment. "We are all puzzled because there is no logic to this ruling. The ruling says that we transferred shares that we didn't control into an escrow account that never existed," Jain insisted.

Jain last week brought a suit against insurance companies that withdrew his coverage following a related May 2003 judgment against him.

In December 1998, Jain took InfoSpace public on Nasdaq, and before he left was praised as being the driving force behind 24 InfoSpace mergers and acquisitions, and for providing "visionary perspective on the direction of the Internet".

In May 2003, U.S. District Court Judge Marsha Pechman, ruled that Jain was going to be liable for short-swing trading that prohibits employees from trading in shares that they have purchased in the last six months.

The court ruled that the Jains purchased InfoSpace shares from their children's trusts by placing them into an escrow account.

Jain was sued by shareholder, Thomas Dreiling, who brought the case in 2001 alleging Jain and his wife Anu made four short-swing trades where they illegally moved InfoSpace stock from three irrevocable trusts into an escrow account or their personal brokerage account.

In May, judge Pechman charged Jain with selling shares during his tenure as CEO of InfoSpace between 1998 and 1999. But Jain says the shares he has sold were founder shares and not from the trusts set up in the name of his children.

The Jains said they had never touched the trust set up in their children's name.

"What plaintiffs are trying to do is to makeup fictitious stock purchases within six months of our legal and proper sales of founder stock therefore attempting to make millions at our expense," Jain maintained.

"There is a mountain of evidence that clearly shows that trusts that we created for our young children never sold any shares and we did not purchase any shares from these trusts either."

He contended he had never opened an escrow account, as claimed by plaintiffs.

Robert Silverman, Gramercy Strategies, Inc., spokesperson for Jain, said: "The facts really tell the story very clearly. Every SEC (Securities and Exchange Commission) document filed by InfoSpace after the 1998 IPO prospectus, for the four years following that, continued to report that the trusts maintained ownership and possession of the shares that the plaintiff alleged had been transferred by the Jains into personal accounts."

Moreover, Silverman said: "The trusts made payments every year for this entire four-year period, something which they could not have done if all of these shares had already been sold by these trusts."

Jain also noted that InfoSpace and others who had participated in the transactions had submitted sworn testimony that no escrow account was ever established and that there was no transfer of assets from the trust accounts.

Following Pechman's ruling that Jain was liable for insider trading, InfoSpace insurers withdrew his coverage.

Regarding Jain's case against the insurance companies, Silverman said: "InfoSpace has directors' and officers' liability insurance. And Naveen is insured under that policy. The policies provide coverage for this liability. And the insurance companies are disputing that and are denying him that coverage."

Jain, who came to the U.S. from India in 1979, and worked with Microsoft from 1989 to 1996, when he founded InfoSpace, said he and his wife were confident the appellate court would reverse this decision against him.

Jain has started another company, Intelius, Inc., which focuses on homeland security technology.

Meanwhile, InfoSpace in a release relating to the case, said the damages brought by Dreiling on behalf of InfoSpace, would go to the company.

Further, "the court's order may be appealed by the Jain defendants and the outcome of any appeal is inherently uncertain. Accordingly, InfoSpace cannot at this time determine with any certainty the amount, if any, or timing, of any payment that may be required to be made by the Jain defendants to the company."

Source: IANS
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