Three months ago, the board of directors at InfoSpace ( INSP) ousted CEO Naveen Jain, who then accused the board of "raping" employees and shareholders.

But this week, things got really ugly.

Late Monday, InfoSpace sued Jain -- who founded the onetime Internet stock rocket back in 1996 -- accusing him of breaching contractual and fiduciary duties owed to InfoSpace. The suit also names former InfoSpace software architect Kevin Marcus, as well as Jain and Marcus' new company, called Intelius.

Jain, who calls the lawsuit "completely, absolutely without merit," responded Tuesday by accusing current management of cronyism, "inside dealings" and "siphoning off company cash." Jim Voelker, who succeeded Jain as chairman and CEO of InfoSpace, called Jain's allegations "just categorically false."

The dispute illustrates how Jain -- an animated and outspoken man who can safely be described as "colorful" -- looms as a presence at InfoSpace, whether or not he actually shows up to work there.

News of the dispute hammered InfoSpace's stock Tuesday, sending its shares down $1.94, or 17.5%, to trade at $9.15. At their peak, shares in the company traded at a reverse-split-adjusted price of $1,300 apiece.

A Cat and a Mouse

Commenting on the stock's movement Tuesday, Voelker said, "It's unfortunate, but it's one day." InfoSpace, which provides wireless and Internet software and application services, is in the midst of formulating a new strategic direction, says Voelker, which it will likely start publicizing in April. "I wouldn't be here if I didn't think the company had some bright prospects," he says.


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At issue in Monday's lawsuit is Jain's role as chairman and CEO of Intelius, a company founded in January and staffed by Marcus and four other former employees of InfoSpace. Intelius is developing a directory service product, alleges InfoSpace, which directly competes with an InfoSpace offering that links a free white pages directory to various for-pay databases.

For that and other reasons, InfoSpace says Jain and Marcus have violated confidentiality and noncompetition terms of nondisclosure agreements they signed when they were at InfoSpace.

Door to Door and House to House

For his part, Jain says his new company is involved with personal safety and homeland security, "which is not a business that InfoSpace has ever been in." His new company's technology, which he declined to describe in detail, is based on open source software such as Linux, says Jain. "InfoSpace was completely based on proprietary technology and Windows," he says.

"The lawsuit is in retaliation for whistleblowing," says Jain, who accuses Voelker and InfoSpace Chief Operating Officer Edmund Belsheim Jr. of improper actions at the company -- evidence of which Jain says he has, but which he declines to make public. Jain also accuses Voelker of "stuffing the board" by appointing a friend, George M. Tronsrue III, last month.

Voelker, again denying Jain's accusations, called the suit "an unfortunate circumstance all around," adding, "The board of directors has its duties."

Continued Voelker, "A noncompete agreement with a former founder and CEO is a significant asset, and we have to protect our intellectual property and our shareholders' rights."