-6-
Mr. Facq used his margin account not only to borrow the
funds necessary to exercise his options but also to fund the
payments of withholding taxes. He also used the margin account
to borrow money to purchase other items in 1999 and 2000. For
example, he purchased a Dodge Viper, a 53-foot boat, a Ferrari
F50, a Lamborghini Diablo, a condominium in Whistler, British
Columbia, Canada, a house in France for his parents, and a house
in Woodinville, Washington.
Mr. Facq had title to his InfoSpace shares subject to the
interest of Hambrecht and Quist securing the repayment of his
loans. Mr. Facq had the right to vote the shares, to receive
dividends with respect to the shares, and to pledge the shares as
collateral. Mr. Facq generally kept the shares in his margin
account and did not sell them immediately to pay the amount he
owed to Hambrecht and Quist. He was confident in the success of
the business he helped create and anticipated that the stock
would continue to appreciate like many other Internet stocks of
the time.
Unfortunately, the value of the stock declined significantly
in mid-2000. As the value of the stock declined, Hambrecht and
Quist issued Mr. Facq numerous margin calls on his account in
July and August 2000. Mr. Facq had to either deposit funds in
the account or Hambrecht and Quist would sell some of the
InfoSpace stock to cover the outstanding debts. Mr. Facq
accepted a $3 million loan from Mr. Jain and a $3 million loan
from InfoSpace to pay down the margin debt he owed to Hambrecht
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Last modified: May 25, 2011