EBay’s Dispute With Craigslist Being Probed by U.S. Prosecutors

EBay Inc. (EBAY) said it’s cooperating with a U.S. Justice Department investigation of its dispute with Craigslist Inc.

Prosecutors are investigating whether EBay employees stole confidential information from Craigslist, according to a copy of a grand jury subpoena. The online classified company claims in a lawsuit in state court in San Francisco that EBay stole the information to start a competing online ad site when the two companies were negotiating over EBay buying a stake in Craigslist.

“We will cooperate with any inquiry related to the disputes between EBay and Craigslist,” Amanda Miller, an EBay spokeswoman, said yesterday in an e-mail. “EBay believes that Craigslist’s allegations against EBay are without merit.”

The Sept. 7 grand jury subpoena of Craigslist seeks information pertaining to “incidents where EBay employees engaged in alleged criminal activities and misconduct focused around the misappropriation of proprietary/confidential information from Craigslist.”

The incidents include a February 2005 request by Pierre Omidyar, EBay’s chairman and founder, for information about Craigslist’s approach to adding new cities and advance notice of plans to launch new cities, according to the subpoena.

EBay Classifieds

In March 2007, without Craigslist’s knowledge or consent, Brian Levey, EBay’s deputy general counsel, forwarded Craigslist’s confidential financial information from 2004 and 2007 to members of a team starting an EBay online classified ad site, according to the subpoena.

Troy Sauro, an attorney for San Francisco-based Craigslist, and Jack Gillund, a spokesman for the U.S. Attorney’s office in San Francisco, declined to comment on the investigation.

“It’s a further escalation of a conflicted relationship between EBay and Craigslist,” Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles, said in a phone interview. “What’s for sure is it’s going to be continually harder for EBay to influence Craigslist and realize the value of its investment in Craigslist.”

EBay, based in San Jose, California, bought a 28 percent stake in Craigslist in 2004. The company developed an online classified site called Kijiji in 2007. The site was renamed EBayClassifieds.com.

Threat to Craigslist

Craigslist owners James Buckmaster and Craig Newmark then enacted takeover defenses in an attempt to strip EBay of its board seat on grounds that the minority shareholder posed a threat to their company.

EBay sued Craigslist in Delaware, alleging the company’s so-called poison-pill plan was enacted to punish it for starting a competing site. EBay won a ruling last year throwing out the poison-pill plan and upholding most of its rights as a minority investor.

“Craigslist asserted allegations of misconduct against EBay as a defense in the Delaware case, but the Delaware court did not rule in Craigslist’s favor on the defense,” Miller said in the e-mail.

Craigslist sued EBay in state court in San Francisco alleging breach of contract, breach of fiduciary duty, negligent misrepresentation and violation of California securities law. EBay has denied wrongdoing and claims Craigslist breached terms of a shareholders’ agreement between the two companies.

The lawsuit case is Craigslist v. EBay, 475276, Superior Court of California (San Francisco).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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