In re eBay, Inc. Shareholders Litigation
Delaware Court of Chancery
2004 WL 253521 (Feb. 11, 2004)
Goldman Sachs, underwriting eBay's 1998 IPO, allocated valuable IPO shares to eBay "insiders" (a practice called "spinning") allegedly to induce eBay to keep hiring Goldman; three of eBay's seven directors received these allocations and sold the shares on the open market for significant profit. Shareholders (plaintiffs) sued the directors (defendants) derivatively without making a pre-suit demand on the board, arguing demand was futile because three directors participated in the spinning and the remaining four had close ties to those directors plus valuable stock-option incentives to keep their board seats; it was undisputed eBay could afford the stock, was in the securities-investing business, and was never given a chance to decline the allocations itself.
Whether shareholders must make a pre-suit demand on the board before filing a derivative action when the independence of a majority of the board is reasonably questionable, and whether directors may personally accept private IPO stock allocations that the corporation itself could have purchased.