Tuesday, October 28, 2008
This is a pretty simple case about usurpation of a corporate opportunity. Investment bankers approached eBay's principals with offers of shares in companies to be distributed in public offerings that the banks were underwriting. In return, the investment banks hoped to win eBay's business in future transactions in which eBay would need investment banking services. At the time of these transactions, getting one's hands on shares from such public offerings was very desirable, as the shares were inevitably undervalued and would appreciate quickly in value in the days after the public offering. Buying such shares and then quickly re-selling them is a practice known as "spinning." The shares were in effect a gift that resulted in millions of dollars in profits for the eBay executives. What did they do with those profits? Threw them on the pile, I suppose.
In any case, eBay shareholders sued, arguing that the profits really belonged to eBay and not to the executives. After all, the investment banks could have offered those shares to any random multi-millionaire or billionaire. They chose to offer the shares to eBay executives because the investment banks were interested in the company's business. The court agreed, finding that the investment opportunities were in eBay's line of business and that the company had an interest or expectancy in the opportunity.
In re eBay
"A billion? It's a beginning,
But I need more -- think I'll try spinning."
The court said "No way!
You have to repay
eBay, whose profits you're skimming."