This derivative lawsuit appears to be much more positive than negative for both InfoSpace and its shareholders. I think you are misinterpreting what the lawsuit is about. According to the text of the press release announcing it, a shareholder has filed this suit against current and former officers and directors to recover $2 billion from them to be returned to InfoSpace:
The "Shareholders Derivative Suit," filed by the Seattle law firm of Sirianni & Youtz on March 19, 2001, seeks recovery directly for InfoSpace."
This is not a conventional class action lawsuit in which the defendent company pays damages (however small) to a class of wronged shareholders. This suit asks that the defendent officers and directors "disgorge" their profits from trading INSP stock and return them to InfoSpace, which is the same as returning them to the shareholders. It seeks no damages from InfoSpace itself, just the named individuals who profited from trading in InfoSpace's stock. Essentially it seeks Jain and others to return their profits from selling INSP stock back to the company for the company's benefit and thus of it's shareholders. A paradox is that, according to INSP's 10-K, INSP may be responsible for indemnifying the officers and directors in "certain circumstances" against the charges. Whether or not INSP is obligated to do this and to what degree, if any, has not been determined by the company's lawyers yet. If INSP were to decide that it is responsible for indemnifying the defendents, the lawsuit would be pointless because any awards InfoSpace paid to settle the suit would just be returned to InfoSpace. It would be a paper accounting movement only, except for attorney's fees, which would have to be paid. As far as I can figure, the only negative to the company is the degree to which management is distracted by having to attend to the suit. If this suit were to lead to the departure of Jain, there would be negative repurcussins as well because his vision guides the company. Otherwise, this lawsuit appears to be quite positive for the company and its shareholders, as they stand to be the winners if a settlement or positive verdict is reached. Any settlement made would be added to InfoSpace's capital and equity. InfoSpace has now net liability financially. For those angry at Jain, this is a chance to attack him. |
