Naveen Jain, the ousted founder and former chief executive of
, was ordered by a federal court to pay the company $247 million for a series of disputed stock transactions dating to 1998 and 1999.
The U.S. District court for Western Washington ruled that Jain violated an obscure
rule meant to prevent daytrading by company insiders when he allegedly placed shares held by a trust set up for his children into an escrow account.
Jain vehemently denies such a transaction occurred, and vowed to appeal the ruling.
The ruling followed a summary judgment in mid-May holding that Jain engaged in "short-swing trading" that violated the SEC's 16-b rule. Jain was sued by Seattle lawyer Thomas Dreiling on behalf of the company, and any proceeds would accrue to InfoSpace.
In an extensive rebuttal, Jain claimed the ruling was based on an erroneous footnote appended to the company's 1998 initial public offering prospectus.
"An employee or agent of InfoSpace erroneously inserted a small footnote in this prospectus indicating the Jains had placed shares held by their children's trusts in an escrow account," he said in a statement. "No such escrow account ever existed, nor were shares from the trusts used for this purpose."
Such a transaction would be legally significant because -- if it occurred -- it would represent a purchase by Jain of the trust's shares within six months of sales he'd previously carried out. That would violate the SEC's rule 16-b.
"All the trust shares remain intact in the Jains' children's trusts to this day," Jain said in the statement. "The court's ruling that the Jains purchased these shares in 1998 and 1999 is inconsistent with the facts."
Jain also took aim at the notion that the prospectus itself caused the transfer into escrow of the shares.
"As enunciated in the trusts' July 2003 court filing, InfoSpace's IPO prospectus cannot cause the sale of assets from the Jains' children's trusts," he said. "Only the trustee can make such a transfer of assets, which the trustee confirms it did not. Just as InfoSpace's IPO prospectus could not have caused the sale of another person's home without his authorization, similarly, InfoSpace and Mr. Jain could not have taken control of trust assets without the knowledge and authorization of the trustee who oversees those assets."