Internet firm faces racketeering lawsuit

Associated Press

SEATTLE — A senior InfoSpace Inc. executive has sued the Internet company and its chairman under federal racketeering laws, saying it reneged on a promise to give him more stock options than any other employee.

John E. Richards, vice president of merchant services for online content suppliers, said in a lawsuit filed in federal court Tuesday that the company’s chairman, Naveen Jain, repeatedly lured executives with unfulfilled promises of stock options.

"We intend to prove that later, when these employees were no longer of immediate use to him, those options were denied," Richards’ lawyer, Steve Berman, wrote in the complaint.

Richards said he was given options to buy 125,000 shares as an incentive to join InfoSpace and build an online telephone and merchant directory in 1998. He later learned some employees were given options for many more shares.

He is suing for unspecified damages, court costs and an adjustment to ensure that he receives more options than any other employee.

Jain refused to comment, but company spokesman Mark Peterson said, "We believe these allegations are totally without merit and plan to vigorously defend our position using all appropriate legal means."

The lawsuit cites similar allegations by six other top executives at the Internet portal. Two of those cases were settled for a combined $15 million.

Richards’ case is the only one filed under the Racketeer Influence and Corrupt Organizations Act. While often associated with organized crime, RICO is also used to prosecute other types of fraud.

The suit claims Jain told Richards that their agreement did not need to be put in writing because if it were, it might make other employees envious.

Jain also instituted a policy forbidding employees to discuss their stock options, the lawsuit says.

In a 1998 filing with the Securities and Exchange Commission, InfoSpace acknowledged its procedures for granting options to new employees were not clearly documented.

"In light of the receipt of the above claims, there can be no assurance that the company will not receive similar claims in the future from one or more individuals asserting rights to acquire common stock," the filing said.