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Friday, August 27, 2004 - Page updated at 01:49 P.M.
Shareholder accuses congressional candidate's wife
By Warren Cornwall
A shareholder lawsuit pending in state court accuses them and other former InfoSpace executives of selling shares without telling shareholders that much of the company's revenue was illusory.
The lawsuit, filed in 2001, does not involve Alex Alben, a former RealNetworks executive who is running as a Democrat for the 8th Congressional District seat being vacated by U.S. Rep. Jennifer Dunn.
Ellen Alben was InfoSpace's senior vice president of legal and business affairs until late 2000, and Tammy Halstead, Alben's campaign treasurer, was InfoSpace's chief financial officer before stepping down in 2003.
Ellen Alben sold $14 million worth of InfoSpace shares in 2000 the year the company stock price collapsed from $277 to less than $9 per share during the dot-com crash.
Alben and Halstead are accused of selling stock during a period in late 2000, when accounting rules allowed company executives to sell only a fraction of their holdings.
They both relinquished their executive positions during that time and then sold stock, though both continued to work for the company, according to the lawsuit and other documents.
Ellen Alben said in an interview she had done nothing improper, and that the legal dispute should not affect her husband's candidacy.
"Number one, I'm not the candidate. Number two, I never did anything wrong. Anyone can bring a lawsuit," she said.
Seattle attorney Steve Sirianni, who brought the lawsuit on the part of a lone shareholder, said, "This is a case that has tremendous merit and we're going to prosecute it as vigorously as we can."
Halstead could not be reached for comment.
"I knew that it would be potentially raised by people in a campaign, but that it was really not relevant," he said. "It doesn't reflect on my qualifications."
Alben faces two opponents Dave Ross and Heidi Behrens-Benedict in the Sept. 14 primary for the 8th District seat.
"I think voters in this area don't like personal attacks, especially on a candidate's wife, and that it will probably backfire," he said. Alben said Halstead was a friend who volunteered to help manage the campaign's finances.
State Democratic Party Chairman Paul Berendt, who recruited Ross to join the race and has had a strained relationship with the Alben campaign, said such allegations could prove problematic for a candidate.
"The business of spouses of candidates is a legitimate concern," he said. "Alex and Ellen were both corporate attorneys, so one would assume that they talked shop some at home."
Alex Alben never worked at InfoSpace. He has made his experience managing high-tech ventures a cornerstone of his campaign. He says he wants to help make the Eastside a center of technology research and business.
He has loaned $300,000 of his own money to his 8th District race, money he says is separate from his wife's earnings.The lawsuit, pending in King County Superior Court, says InfoSpace between 1999 and 2002 inflated its financial performance with unsustainable or "bogus revenue sources" and failed to properly disclose it.
The lawsuit alleges a number of former InfoSpace executives who knew of the company's troubles were selling large amounts of stock.
"The defendants enriched themselves, collectively by hundreds of millions of dollars, by trading on inside information," the lawsuit contends.
Company now profitable
Under new management, the company is now profitable. It focuses on Internet search engines and directories such as an online yellow pages.
Earlier this year, InfoSpace agreed to pay $34.3 million to settle a separate class-action investor lawsuit alleging the company gave false and misleading information about its performance, inflating the sale price of stock. InfoSpace said it was not admitting to any wrongdoing with the settlement.
The company was, for a time, a darling of the dot-com era. Its plans to pioneer the wireless Internet drew investors, driving the stock price to a high of $277 in early March 2000. Company founder Naveen Jain, also named in the lawsuit, predicted in 2000 the company would become the world's first trillion-dollar company.
Ellen Alben joined InfoSpace in May 1998 and served as the company's lead attorney, helping to negotiate contracts and acquisitions, she said.
She and Alex Alben met at Stanford law school, married in 1988 and moved from California to the Puget Sound area in 1993 when she took a job as an attorney for Hillhaven, a nursing-home provider. Alex Alben worked at the Paul Allen venture Starwave before joining RealNetworks in 1998.
Information in suit
According to the lawsuit, Halstead joined InfoSpace in July 1998 as corporate controller, the company's lead accountant. In January 2001, she became chief financial officer.
During 2000, Ellen Alben sold nearly 473,000 shares worth $14.4 million, according to Securities and Exchange Commission filings. She retired in late 2000. Halstead sold 100,000 shares worth $2 million before leaving the company in 2003, according to court records.
Some of their stock sales happened in late 2000, after the company had announced a merger with Go2Net, a Seattle-based company that owned several popular Web search engines.
For several months after the Oct. 12 merger, InfoSpace executives were barred by accounting rules from selling all but roughly a tenth of their shares.
Ellen Alben had already planned to resign Oct. 13, according to a Sept. 27, 2000, letter she wrote to then-CEO Arun Sarin. She would reduce her work to 15 hours per week, while preserving her stock benefits, according to the letter. It also removed her as an executive, freeing her to sell InfoSpace stock. She left the company Dec. 19, she said.
Between Dec. 11 and Dec. 22, 2000, she sold 262,000 shares worth $1.6 million.
Ellen Alben said she left her executive post because the company was becoming a more established business, and working there held less interest for her. She said she wanted to stay until the Go2Net deal was completed, and sold large amounts of stock late in the year to reduce her tax bill, not because she saw trouble coming for the company.
"Wanting to sell a whole bunch of shares was not my motivation. If I had wanted to do that, I would have done it well before the closing from the Go2Net merger" when stock prices were higher, she said.
Halstead resigned as chief accounting officer on Nov. 24, 2000, according to an InfoSpace internal document. Halstead sold 62,500 shares worth an estimated $517,000 in late December, court records say.
After resigning her executive post, Halstead remained at InfoSpace as a staff accountant. Then she returned to a top executive position Jan. 21, 2001, becoming chief financial officer.
In late January 2001, the company underwent a management shakeup and Naveen Jain told analysts that revenue for 2001 would be significantly lower than estimates. The company's stock price dropped from $9 to $4 per share within weeks.
Today InfoSpace stock trades at $34. Adjusted for splits, it is still below its January 2001 price.
Ellen Alben predicted that the lawsuit will soon be settled with no admission of guilt. "I am extremely optimistic that this will all work out well," she said.
Warren Cornwall: 206-464-2311 or firstname.lastname@example.org
Staff writer David Heath contributed to this report.
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