In Re Ebay, Inc. Shareholders Litigation

Facts

In 1995, Omidyar and Skoll (Ds) founded nominal defendant eBay, as a sole proprietorship. In 1998, eBay retained Goldman Sachs and other investment banks to underwrite an initial public offering of common stock. Goldman Sachs was the lead underwriter. The stock was priced at $18 per share. Goldman Sachs purchased about 1.2 million shares. Shares of eBay stock became immensely valuable during 1998 and 1999, rising to $175 per share in early April 1999. Around that time, eBay made a secondary offering, issuing 6.5 million shares of common stock at $170 per share for a total of $1.1 billion. Goldman Sachs again served as lead underwriter. Goldman Sachs was asked in 2001 to serve as eBay's financial advisor in connection with an acquisition by eBay of PayPal, Inc. For these services, eBay has paid Goldman Sachs over $8 million. It is alleged that during this time Goldman Sachs “rewarded” D by allocating to them thousands of IPO shares, managed by Goldman Sachs, at the initial offering price. Because the IPO market during this particular period of time was extremely active, prices of initial stock offerings often doubled or tripled in a single day. The allegation of the complaint is that Goldman Sachs provided these IPO share allocations to the individual defendants to show appreciation for eBay's business and to enhance Goldman Sachs' chances of obtaining future eBay business. Goldman Sachs allocated Omidyar shares in at least forty IPOs at the initial offering price. Omidyar resold these securities in the public market for millions of dollars in profit. Whitman owns 3.3% of eBay stock and has been President, CEO and a director since early 1998. Whitman also has been a director of Goldman Sachs since 2001. Goldman Sachs allocated Whitman shares in over a 100 IPOs at the initial offering price. Whitman sold these equities in the open market and reaped millions of dollars in profit. Skoll, in addition to co-founding eBay, has served in various positions at the company, including Vice-President of Strategic Planning and Analysis and President. He served as an eBay director from December 1996 to March 1998. Skoll is eBay's second largest stockholder, owning about 13% of the company. Goldman Sachs has allocated Skoll shares in at least 75 IPOs at the initial offering price, which Skoll promptly resold on the open market, allowing him to realize millions of dollars in profit. Kagle has served as an eBay director since June 1997. Goldman Sachs allocated Kagle shares in at least 25 IPOs at the initial offering price. Kagle promptly resold these equities and recorded millions of dollars in profit.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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