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Investors File Amended Complaint to Shutter Idealab

January 15, 2003|E. Scott Reckard | Times Staff Writer

Investors who poured more than $700 million into Idealab, the Pasadena firm that nurtured young tech companies during the Internet boom, have returned to court with a third version of their fraud lawsuit against the so-called incubator and its founder, Bill Gross.

The third amended complaint, filed late Monday, was made in response to Los Angeles County Superior Court Judge Ralph Dau's demand for more specifics, as part of the preliminary sparring to shape the case.

The plaintiffs, which include former Microsoft Corp. executives and a T. Rowe Price Associates Inc. mutual fund, have been seeking to dissolve Idealab and recover some of their investment. Idealab's once-promising fortunes collapsed along with the Internet stock bubble.

The new complaint cites recently obtained Idealab e-mails as evidence that Gross and other Idealab directors "engaged in a series of actions to enrich Gross, fund and secure Gross' personal financial obligations and allow Gross and his wife to maintain the lifestyle to which they have grown accustomed."

Among other things, the suit contends that Gross used Idealab assets to restructure a $75-million personal loan from Bank of America and "contrived" a tender offer for Idealab shares to cover up his misuse of assets.

In a statement, Idealab said the lawsuit was twisting facts.

"Many of the actual events that don't support their conspiracy theories are conveniently omitted, and when they are added to the mix, completely undermine the allegations," said Idealab, which is expected to file an answer to the latest complaint within about two weeks.

Investors want Idealab shut down so they can lay claim to its remaining $350 million in liquid assets.

Calling allegations in the suit false, Gross has insisted he won't close Idealab, which in the 1990s spawned search engine Overture Services Inc., failed EToys Inc. and other ventures.

Other defendants in the suit include Marcia Goodstein, Gross' wife and company president; other senior officers; and director Benjamin Rosen, founder of Compaq Computer Corp.

In an interesting twist Tuesday, plaintiffs said they will seek a deposition from former General Electric Co. Chief Executive Jack Welch, another Idealab director.

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