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eBay executives to pay $3 million to settle shareholder lawsuit

May 2, 2005

Three well-known eBay executives will pay $3 million to settle a company shareholder lawsuit about whether the eBay veterans benefited in special privileges to acquire eBay stock that was unavailable to ordinary shareholders or to small investors.

EBay CEO Meg Whitman, founder and chairman Pierre Omidyar, and former President Jeffrey Skoll agreed to reimburse eBay shareholders for allegedly purchasing shares in hot technology companies between 1999 and 2001.

EBay's investment bank, Goldman Sachs Group Inc., agreed to pay $395,000, according to a statement Thursday from a New York law firm that represents the plaintiffs in the suit against the trio and Goldman Sachs.

According to the lawsuit, Goldman Sachs invited eBay executives to buy shares in numerous startups that Goldman represented. The executives then allegedly sold the shares _ in some cases only hours or days after the companies' initial public offerings, a practice known as "flipping" _ and made $3 million in profit.

Attorneys for eBay shareholders contended that Goldman Sachs shouldn't have made those pre-IPO stocks available exclusively to senior executives at a corporate client _ a practice dubbed "spinning." Instead, Goldman Sachs should have offered shares to all eBay shareholders.

Spinning was legal until 2003, but many business experts have long considered it a conflict of interest _ in this case, a means of currying favor among wealthy individuals who have private accounts with Goldman Sachs, rather than an opportunity for every shareholder of companies Goldman Sachs represents.

As part of eBay's settlement, executives denied that any of the allegations were true. EBay spokesman Chris Donlay said Thursday that Whitman, Omidyar and Skoll did not violate the law when they flipped shares between 1999 and 2001.

"Meg, Pierre and Jeff just thought it was in the best interest of shareholders to settle and put the litigation behind us," Donlay said.

If approved by a judge in Delaware Chancery Court, eBay will file a motion to dismiss two similar cases.

Goldman Sachs representatives could not be reached for comment Thursday. The settlement is the latest over widespread allegations of spinning among U.S. executives and blue-chip investment banks.

In 2003, former Qwest Communications International Inc. CEO Joseph Nacchio agreed to pay $400,000, and Qwest founder and former chairman Philip Anschutz agreed to pay $4.4 million over spinning allegations. Last year, a dozen of Wall Street's largest brokerages agreed to a $1.4 billion global settlement.

About half the $3.4 million settlement will go to the San Jose, Calif.-based online auction powerhouse. The other half will go to charities.

Source: Biz Report

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