Indian CEO fined $250 million by US federal court

Hindustan Times ^ | Washington, August 24 | S Rajagopalan

[DeaconBenjamin]

In the largest award of its kind in the US, ousted InfoSpace chief Naveen Jain has been ordered to pay $247 million to the company that he founded as penalty for violating laws against "short swing trading".

The order by a federal judge is a body blow for a man who took his Seattle-based Internet company to great heights in a space of four years before it crashed like most of its peers during the dotcom bust. The company board fired Jain last December.

But Jain, who went ahead and founded Intelius after the ouster, is not giving up just yet. He termed the ruling “unjust and legally incorrect” and said that heand his wife, Anu, would appeal against it.

InfoSpace was one of the runaway stock market successes during the Internet boom. At one point, the company was worth more than Boeing. Jain held more than $8 billion in InfoSpace stocks in March 2000, when they traded at $130.50 a share. By July 2002, however, the value had crashed to less than $1.

The civil lawsuit against Jain was brought by Thomas Dreiling, a shareholder, who accused him of indulging in “short swing trading”. The Securities Exchange Act prohibits company insiders from trading shares within six months of their purchase or sale.

Judge Marsha Pechman ruled that Jain illegally bought and sold millions of InfoSpace shares between December1998 and May 1999. Several illegal stock transfers took place within the prohibited six-month period. He was also found guilty of taking improper control of shares he had given to his children’s trusts.

The judge held that Jain had netted $202.6 million in profits from the transactions. He added interest to the sum, and arrived at the award figure of $247 that Jain now has to pay to InfoSpace. But the shareholder who took Jain to court gets nothing.

Contesting the findings, Jain said that Dreiling and InfoSpace had created “fictitious purchases” of stock in his name. “They are alleging we purchased shares from our children’s trusts when we did not. All the children’s trust shares remain in their trusts to this day,” he maintained.

Dreiling’s attorneys have started eyeing Jain’s holdings. Apart from a mansion in Medina and another on Mercer Island, they reportedly include two yachts, $30 million in InfoSpaces stocks and a piece of the Seattle SuperSonics.

A product of Roorkee University and St Xaiver’s School of Management, Jain moved to US in 1979. Before founding InfoSpace in 1996, he was a senior Microsoft executive. He was associated with the launch of MS-DOS 5.0 and was among the first 20 people to start the development of Windows NT and Windows 95 platforms. He later launched Microsoft’s online service, The MicrosoftNetwork.

[DeaconBenjamin]

I mention that he is Indian because that was of interest to the newspaper printing the article.