"Amended" Class Action Lawsuit: PART SIX
The full public document titled "First Consolidated and Amended Complaint for Violation of the Federal Securities Laws," was filed on May 9, 2002 with the U.S. District Court. A PDF copy can be downloaded from: hagens-berman.com
Below are some selected excerpts which are only a small fraction of the 101-page filing. Please refer to the entire document for the complete context, chronology, details, and the full allegations contained in the filing.
Excerpts below taken from Pages 81-101:
(bold added for emphasis)
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242. Without the inflation in the valuation of InfoSpace's stock price, the company would have had to pay substantially more for the companies it purchased throughout the Class Period.
243. Defendants also carried out other acquisitions during the Class Period using InfoSpace stock as currency. These acquisitions, while not announced to the market, later became public because the companies sued InfoSpace and Jain, as well as other InfoSpace officers and directors, due to alleged fraud in transactions. For example:
(a) As detailed in a complaint filed in California State Superior Court for San Diego County on December 1, 2001 (Case Number GIC-779321), in early 2000 InfoSpace representatives made a deal to purchase most of the assets of BoxLot Corporation. After various negotiations, InfoSpace settled on a price of $100 million to purchase BoxLot, with a condition that BoxLot not seek further financing from other sources. After the making the agreement, however, according to the Complaint, InfoSpace delayed further negotiations on closing the deal, all the while draining BoxLot's assets and ability to conduct business.
(b) According to the BoxLot Complaint, InfoSpace then changed the terms of the deal, forcing the company into an "asset sale" instead of a merger, where InfoSpace would receive BoxLot's proprietary technology, customer lists, other intellectual property and its two senior software engineers. The Complaint asserts that InfoSpace sought to buy these assets at a fire sale price of only $21.5 million, 80% of which would be paid using artificially inflated InfoSpace stock. After further allegedly unreasonable delays by Jain, InfoSpace and InfoSpace executives, the deal finally closed on December 6, 2000, by which time the price of InfoSpace stock had slumped to only $13.8125 per share. At this price, according to the BoxLot Complaint, BoxLot received stock valued at only $4.36 million instead of the $17.2 million that it and InfoSpace had previously agreed on.
(c) Separately, the founder of Orchest, which InfoSpace announced it had purchased on August 4, 2000, sued defendants Jain and InfoSpace over alleged fraud in the deal. The Complaint was filed in California State Superior Court for Santa Clara County on June 14, 2001 (CV799105). The Complaint alleges that although under the original terms of the deal, InfoSpace agreed to pay upwards of $27 million for Orchest, Jain "had no intention" of fulfilling the deal. Rather, the Complaint alleges, Jain's undisclosed intention was to obtain the assets of Orchest and the key consultants of Orchest as the assets and employees of InfoSpace and then force [Orchest's founder] to enter into new negotiations to accept a much lower price for the issued and outstanding stock of the Orchest shareholders. Ultimately, as InfoSpace announced, the deal closed on August 4, 2000 with a relative value of just over $7.6 million. Subsequent negotiations, according to the Orchest founder's complaint, were fruitless, and revealed Jain's true intentions in the original deal.
F. The Merrill Lynch Defendants
244. Merrill Lynch participated in this fraud because it sought to obtain lucrative investment-banking engagements from InfoSpace, and sought to ensure the successful completion of the InfoSpace/Go2Net merger, for which it acted as a financial advisor for Go2Net. For their role in this merger transaction, Merrill Lynch received significant compensation, much of it dependant upon the successful completion of the merger. Because both InfoSpace and Go2Net's shareholders had to approve the transaction, it was vital that the market price of InfoSpace shares remain strong, or the merger was likely to be terminated. The large fees contingent upon successful completion of the merger provided ample incentive for Merrill Lynch to disseminate false and misleading analyst reports.
245. Defendant Blodget participated in this fraud because, as the Attorney General of New York found, analysts in the internet group at Merrill Lynch were directly influenced by the investment-banking group, and in fact, had their compensation tied directly to the success of their work that benefited the investment-banking group.
273. As detailed in the Affidavit of Eric R. Dinallo, Assistant Attorney General in support of the Attorney General of New York's Application For an Order Pursuant to General Business Law Section 354, Merrill Lynch's statements that it's Investment Banking Group had no internal knowledge of the business conditions at InfoSpace, and its opinions regarding the overall health of the Company were false and or misleading. Merrill Lynch did not disclose to Go2Net investors that getting InfoSpace's business was "very important to us from a banking perspective, in addition to our institutional franchise." As the Affidavit states, defendant Merrill Lynch was willing to make misleading statements about InfoSpace:
XI. PRAYER FOR RELIEF
WHEREFORE, plaintiffs and the Class pray for judgment as follows:
A. Declaring this action to be a proper class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class defined herein;
B. Awarding plaintiffs and the members of the Class compensatory damages;
C. Awarding plaintiffs and the members of the Class pre-judgment and post-judgment interest, as well as their reasonable attorneys' fees, expert witness fees and other costs;
D. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity and the federal statutory provisions sued hereunder, pursuant to Rules 64 and 65 and any appropriate state law remedies, including attaching, impounding, imposing a constructive trust on or otherwise restricting the proceeds of defendant Jain's open-market sales to assure that the Class has an effective remedy; and
E. Awarding such other relief as this Court may deem just and proper.
XII. JURY DEMAND
Plaintiffs demand a trial by jury.
Dated: May 9, 2002
HAGENS BERMAN LLP
By _______________________
Steve W. Berman, WSBA #12356
Karl P. Barth, WSBA #22780
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
(206) 623-7292
William S. Lerach
Thomas E. Egler
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
401 B Street, Suite 1700
San Diego, CA 92101
(619) 231-1058
Randi D. Bandman
Jason T. Baker
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
100 Pine Street, Suite 2600
San Francisco, CA 94111
(415) 288-4545
Andrew L. Barroway
SCHIFFRIN & BARROWAY, LLP
Three Bala Plaza East, Suite 400
Bala Cynwyd, PA 19004
(610) 667-7706
Co-Lead Counsel for Plaintiffs |
