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Some investors want their money back from Idealab! Hey guys, it’s called “due diligence”. Learn it, know it, live it.

-Ian.

—- http://www.siliconvalley.com/mld/siliconvalley/3865355.htm

Posted on Wed, Aug. 14, 2002 Investors seek to reclaim funds in Idealab

SAN FRANCISCO (Reuters) – Concerned that Internet incubator Idealab may not recover its past glory, an investor group has asked federal regulators to classify the firm as a mutual fund which could help recover some of the $700 million it invested in Idealab.

The investor group, which includes Dell Computer Corp. investment unit Dell USA Lp, the William Morris Agency, The Travelers Insurance Group and others, Tuesday asked the U.S. Securities and Exchange Commission to cancel a legal exemption that makes Idealab an investment company, and instead rule Idealab is a mutual fund.

Such a move would entitle the group to a full refund of their investment in the once high-flying dot-com incubator that helped fund start-up companies while they developed a business, then cashed in by selling shares to the public.

Founded in 1996, privately-held Idealab, with headquarters in Pasadena, California, was one of the Internet boom’s most closely watched incubator companies. It was once valued at more than $10 billion, but now its assets are valued at roughly around $400 million.

The attorney for the investor group could not be reached, but in its petition, the group alleged Idealab undertook a ”carefully orchestrated sham” to mislead the SEC into giving it an exemption from the Investment Company Act of 1940.

Had Idealab not received an exemption, it would have had a more difficult time preparing for an initial public offering, a plan that attracted over $1 billion from investors for pre-IPO shares at the height of the Internet craze, the petition said.

Idealab General Counsel Douglas McPherson told Reuters the petition has no precedent, and that the firm was and continues to be in compliance with SEC regulations.

“We never misrepresented our status to the SEC or these sophisticated investors,” McPherson said.

Idealab’s biggest hit has been Internet company Overture Services Inc., which pioneered the “paid listings” form of online advertising.

It has also nurtured former high-tech superstars like eToys Inc. and cosmetic seller Eve.com which went out of business.

Idealab’s own IPO plans were scuttled when stock markets soured on Internet companies.

The petition to the SEC is the latest attempt by the investor group to recoup some of its investment.

Earlier this year the group, which holds about 9 percent of Idealab shares, filed a lawsuit in Los Angeles County Superior Court seeking to have Idealab liquidated in order to get back at least some of its money.

The court said it needed more specifics and allowed the investor group to amend its lawsuit. The group then alleged breach of fiduciary duty and fraud against Idealab, which in April rejected a $340 million settlement offer from the group.

“As with their failed complaint, the plaintiffs’ latest allegations are based on distortions and fabrications and are a baseless attempt to extract a settlement for themselves to the detriment of 91 percent of Idealab’s shareholders,” Idealab said in a statement.

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