April 29, 2005
eBay Executives Settle Spinning Lawsuit
Posted by Christine Hurt

Sometime today three eBay executives settled a shareholder derivative lawsuit brought against them regarding their acceptance of hot IPO shares from Goldman Sachs during the 1999-2000 Boom.  Goldman allocated original IPO shares to several eBay executives during a period of time in which eBay was sending large pieces of investment banking business its way.  The executives each made millions from selling the IPO shares in the days preceding the respective offerings.  The executives have agreed to give back $3 million in proceeds from those sales.

The shareholder lawsuit had survived an earlier motion to dismiss; the lawsuit was based on breach of fiduciary duty, specifically the duty of loyalty.  The theory was that the executives had usurped a corporate opportunity, the opportunity to invest in the IPOs.  This lawsuit was interesting because it focused on the spinnee, not the spinner.  At the time of the IPOs, securities laws and NASD rules did not specifically forbid investment banks from allocating IPO shares to investment banking clients.  A new NASD rule does prohibit allocations if the investment bank expects to do investment banking business with that client during a specific time period.

Thanks to Eric Goldman for the tip.

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