Bellevue LifeSpring, which will hold its annual luncheon on Thursday at Meydenbauer Center, is a nonprofit that works to feed, clothe and educate children and their families. The people it serves sound a lot like the investors who lost their life savings in InfoSpace, a Bellevue company founded by Naveen Jain.
At the Thursday lunch, LifeSpring will give its Lifetime Philanthropy Award to Naveen and his wife Anu Jain. Anu Jain serves on LifeSpring’s board of directors. The award goes to people “working toward the betterment of the community,” according to Trish Carpenter, president and chairwoman of LifeSpring’s board.
The shareholders of InfoSpace may choke over that description of Naveen Jain. He is the founder and former chief executive officer of that Bellevue company, which has since been renamed Blucora.
Jain became a billionaire after he took InfoSpace public and the stock price skyrocketed. The only problem was that the company’s revenues were an illusion — a product of accounting tricks and dubious deals woven together by Jain’s masterful storytelling. He claimed in 2000 that InfoSpace would become the world’s first trillion-dollar company.
When the stock market crashed in 2000, investors lost their life savings. Jain’s dubious deals were detailed in a series of Seattle Times stories in 2005 called “Dot-Con Job.” Investigative reporter David Heath and I co-wrote the stories when I was a news reporter.
Here were our main findings:
- InfoSpace officials misled Wall Street and the public about how their company was doing, concealing that revenues were falling far short of expectations.
- Much of InfoSpace’s reported revenue came from “lazy Susan” deals, whereby company officials invested in other firms that turned around and gave back the same money.
Jain was ousted by the board in 2002. He started a company called Intelius, where he is now CEO. Intelius provides online data about people, their histories and connections to others. For instance, Intelius can be used to perform background checks on people.
LifeSpring’s board president Carpenter said of the Jains, “I personally worked with both for probably 15, 16 years. The Jains specifically … are very philanthropic. Not only are they supporting Bellevue LifeSpring but many other nonprofits in the community and across the ocean.”
Asked whether she was aware of what The Seattle Times stories uncovered, Carpenter said, “I don’t have any knowledge of it nor would I want to hear about it.”
What she apparently does not know was that while the Jains became wealthy, investors lost their savings. (Read about the Jains’ $13 million Medina mansion in a 2005 Seattle Times story.)
“What I know of them is the good deeds,” Carpenter said.
Here is one investor who listened to Jain: Bev Hess, a real-estate agent in Nebraska, invested $39,900 in InfoSpace, a third of the savings she amassed over 42 years. That $39,900 investment shrank to $1,450. When Heath and I spoke to Hess in 2005, she was 65 and said she couldn’t afford to retire. “I’m working my butt off,” she said. “That’s what I foresee for the next five or 10 years.” Check out how InfoSpace investors were affected in our 2005 story “Who lost: Retirement savings vanish as stock takes a nosedive.”
In 2001, an investor filed a derivative lawsuit on behalf of InfoSpace, accusing Jain, the company’s officers and directors of misleading shareholders. Jain paid InfoSpace $83 million in 2005 to settle the lawsuit.
Shareholders also filed a class-action lawsuit in 2001 over Jain’s and other executives’ actions. The company settled the lawsuit for $34 million in 2004. (Here is The Seattle Times news story about the class-action settlement.)