Hawaii Insider Trading Suit Hits AOL Mogul

AOL founder Steve Case is in Big Trouble on the Big Island, and so is his lawyer father. Their business venture has been sued for $750 million in compensatory damages and for punitive damages of $2 billion. Here's an excerpt from the article in the Honolulu Star-Bulletin by Stewart Yerton:

The former shareholders of Grove Farm Co. Inc. allege that Case engaged in insider trading while negotiating the acquisition of privately held Grove Farm for $26 million, or $152 a share. The suit alleges that Case acted on information provided to him by his father, Dan, whose law firm, Case Bigelow & Lombardi, served as counsel to Grove Farm at the time of the acquisition.

The suit, filed this week in U.S. District Court in Honolulu, alleges that the elder Case represented his son during the acquisition and made information available to the younger Case that was not available to other parties interested in buying Grove Farm, a large Kauai landowner. The suit further alleges that shareholders were kept in the dark about information that was given to Case by his father and his father's law partners, who were representing the seller at the time...

...The suit alleges that Steve Case and companies affiliated with him were enriched by $750 million as a result of the alleged illegal trading. The suit alleges that the plaintiffs were damaged by the same amount, each in proportion to the amount of stock the plaintiff owned. The suit names 25 plaintiffs.

Steve Case could not be reached for comment yesterday.

A Bethesda, Maryland lawyer is representing the plaintiffs. Matthew Simmons's legal prowess is apparently so feared by Case's side that they unsuccessfully tried to have him excluded from the trial, according to this article:

Maryland attorney Matthew Simmons, an expert in securities, fraud, and corporate governance issues, will join local attorneys John McDermott and Richard Wilson in a suit alleging fraud over the sale of Grove Farm in 2000.

Despite opposition from lawyers representing Grove Farm and the other defendants, including Case's father Dan, Judge Kathleen Watanabe said there were no relevant reasons to stop Simmons from serving on the case.

This lawsuit, filed in 2002 by Wilson on behalf of many of the former shareholders of Grove Farm, is set for trial next October. Steve Case is not a named defendant in the 2002 suit, but Grove Farm is and so are board members of the company.

So, all you AOL stockholders--stay tuned.

UPDATE: More here.