Tuesday, March 8, 2005


Interesting piece from The Seattle Times on Infospace. I remember even after the dot-com bust Naveen Jain, founder of Infospace, was bragging about how his company was going to be a trillion dollar company. And what is the problem with equity analysts like Merrill Lynch's Henry Blodget? He was much of a problem as Infospace's executives in spinning this deception.

The Times' investigation found:

- InfoSpace officials misled Wall Street and the public about how their company was doing, concealing that revenues were falling far short of expectations.

- Much of InfoSpace's reported revenue came from "lazy Susan" deals, whereby company officials invested in other firms that turned around and gave back the same money.

- Wall Street analysts, including famed dot-com guru Henry Blodget of Merrill Lynch, privately expressed grave concerns about InfoSpace while at the same time publicly touting its stock. In a private e-mail to colleagues, Blodget asked, "Is this really a world-class company, or just a world-class storyteller?" Soon after, he gave InfoSpace stock his highest rating.

- While investors clamored to buy InfoSpace's highly touted stock, company insiders were unloading it. Two executives later angled to get around trading restrictions by asking for demotions to sell stock before its value evaporated.

Jain himself accused several of his top executives of engaging in illegal insider trading by misleading shareholders and then dumping their stock.

When the game was up, the investors took a beating. Stock worth $1,000 in March 2000 was worth only $2.67 by June 2002. The company once worth more than Boeing fell to the value of two Boeing 777s.

Allen lost an estimated $400 million when InfoSpace shares collapsed. Hess, 65, saw her $40,000 investment shrink to $1,450.

"I scrimped and saved for 42 years, and I feel that I have been duped out of my hard-earned money," she said.

Hess explained that she plunged into InfoSpace after reading glowing reports from stock analysts and media accounts of Jain and InfoSpace. "I feel like the American public was lied to," she said.
(full article)

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