EToys Sues Goldman Sachs Over IPO
Internet toy seller EToys Inc., which has filed for bankruptcy, said Thursday that it filed a lawsuit against Wall Street firm Goldman Sachs Group Inc. for allegedly mishandling its 1999 initial public offering.
The suit--filed in New York Supreme Court--alleges that Goldman, one of the leading underwriters of IPOs, intentionally underpriced EToys’ offering and received kickbacks from its customers, who profited when the shares soared.
It charges Goldman (ticker symbol: GS) with fraud and breach of contract and fiduciary duty. A Goldman spokeswoman declined to comment on the suit.
Thousands of individual investors have sued dozens of investment banks alleging fraud in the way they doled out shares of IPOs. This case--which echoes a federal investigation into IPO allocation practices--is part of an emerging trend in which companies sue their underwriters as well.
Goldman shares rose 97 cents to $79.17 in New York Stock Exchange trading.
ETrade CEO Returned Pay to Settle Lawsuit
Although ETrade Group Inc. Chief Executive Christos Cotsakos cited “shareholder concerns” when he agreed this month to return almost one-quarter of the $77 million he was paid last year, the decision came after weeks of negotiations with lawyers for a shareholder who sued the Internet brokerage firm in December.
ETrade (ET) also agreed to other restrictions, said attorney Darren Robbins, whose firm represents the shareholder, such as not granting new restricted stock to Cotsakos for two years and consulting with Robbins on the appointment of a director with no affiliations to the company who will sit on the board’s compensation committee.
On Thursday, Menlo Park, Calif.-based ETrade confirmed the settlement with shareholder Thomas Barry, saying it has launched a formal search for an outside director to chair its compensation committee. That person will take over from David Hayden, who recently resigned as chairman of San Francisco-based Critical Path Inc. (CPTH), which does business with the online brokerage. However, Hayden will remain on the compensation committee.
Robbins had sued ETrade, Cotsakos and eight directors, claiming the company misused its assets by forgiving a $15-million loan to the CEO in September 2001.
Cotsakos’ compensation included $29 million in restricted stock and $30 million for the loan and taxes on the loan, more than quadruple what any Wall Street CEO earned. The rewards, granted during a year when ETrade lost $241 million, infuriated many shareholders, who questioned whether ETrade’s board had become too close to Cotsakos. The brokerage said May 10 that Cotsakos would give back more than a quarter of that pay.
ETrade’s annual shareholder meeting is scheduled for today in Redwood City, Calif.
Associated Press and Bloomberg News
Briefly
Costa Mesa-based Emulex Corp. (EMLX) will move from Nasdaq to the NYSE on June 24, where it will trade under the ticker symbol ELX ... Irvine-based Interplay Entertainment Corp. (IPLY) said its stock will move to the Nasdaq SmallCap Market on Tuesday from the bigger Nasdaq National Market.
