Valleywag was the first to report, back in 2007, how Newmark and co-founder Jim Buckmaster required the equivalent of a $16 million bribe from eBay to honor an early employee's 25 percent stake in the online classifieds company. The employee, purported Craigslist co-founder Philip Knowlton, had previously agreed to sell his equity to eBay in desperation, for a separate $16 million, after Newmark and Buckmaster tried to dilute his holdings with new shares. People would speak about the incident only anonymously at the time.

But an eBay executive laid out the same story in testimony today in Delaware court, saying Newmark and Buckmaster demanded $16 million and threatened to block the deal if they didn't get it — their ownership award to Knowlton be damned. Their demand amounted to "essentially extortion," the executive, Garrett Price, testified, according to NBC Bay Area and the San Jose Business Journal.



What's more, Price also testified that Newmark and Buckmaster asked that the payment be hushed up to protect Craigslist's altruistic image. That way, Newmark could continue to float preposterous, image-enhancing deceptions like this one, swallowed by Wired and printed as part of an August 2009 profile of Newmark:

Newmark abandoned the idea of running Craigslist as a nonprofit, which would have required him to learn and follow too many rules.... in the meantime he handed out a significant portion of his ownership to others as a way to avoid acquiring too much authority.

So on the one hand, Newmark is telling the press he's intentionally diluting his ownership in the company to keep his ego in check; on the other, he's frantically bolstering that ownership, a process he only halts when he gets a payoff, made to him, at the expense (effectively) of a major shareholder and former employee/co-founder. What's more, as a result of these shenanigans, his quirky indy SF startup is now partly sold out to a big bad tech giant.

Newmark has yet to take the stand. It should be interesting to see how he spins his way out of this one — not only in the court of law, but in the court of public opinion and brand image.

After the state's attorney general publicly threatened Craigslist over its "adult services" ads, even in the face of recent restrictions on such listings, Buckmaster promptly blasted back with a well-written weblog post suggesting the state should also consider arresting the CEOs of AT&T, Microsoft, and Village Voice Media,

not to mention major newspapers and other upstanding South Carolina businesses feature more "adult services" ads than does craigslist, some of a very graphic nature. For a small sampling, look (careful NSFW) here, and here, and here, and here, and here, and here, and here, and here, and here, and here, and here... What's a crime for craigslist is clearly a crime for any company.

Then came the coup de grace: A lawsuit against the AG for restraining Craigslist's free speech — announced in a Craigslist blog post, naturally.

Rather than allow its reputation as a shady haven to fester, Craigslist is finally tackling it head-on. And not by hiding behind some spokesperson (as much as we adore Craigslist's Susan Best), but direct, straight from the CEO's mouth online, and via its lawyers in court.

The pushback came none too soon: New York's attorney general just busted a Queens-based prostitution ring that advertised exclusively on Craigslist.

Craigslist has long taken pride in the fact that its executives get their hands dirty; founder Craig Newmark famously calls himself "chief customer service representative." That's proven to be a lucrative strategy. Who's to say the company's muscular PR moves aren't an example worth following, as well?

UPDATE: South Carolina's AG has released a statement bizarrely taking credit for changes Craigslist made a week ago:

Columbia, S.C. – "The defensive legal action craigslist has taken against the solicitors and my office is good news. It shows that craigslist is taking the matter seriously for the first time.

More importantly, overnight they have removed the erotic services section from their website, as we asked them to do. And they are now taking responsibility for the content of their future advertisements. If they keep their word, this is a victory for law enforcement and for the people of South Carolina.

We'll chalk it up as a face-saving retreat.

"That particular blog was never about the money, but it definitely makes things more difficult if I have no chance of paying the writers," says White. "I’m torn because there’s so much news every day about them and I’d like to see someone cover it closely." We'll do what we can, Tim.

The site's disappearance is disappointing. But the whole episode served to reveal Craigslist CEO Jim Buckmaster as a control-freaky jerk who's sensitive to criticism, and not averse to litigation when he doesn't get his way. That's good information for people to have — and we wouldn't have learned it without White.

The humility of billionaires! No, the real "nerd values" on display are the ones responsible for this wealth. Like the $16 million Buckmaster and founder Craig Newmark got in brokering a deal to let eBay buy a 28 percent stake in their company. Yet they still make a point of posing as heroes of the ultraliberal working class, second-hand Prius and all. Worse yet, people continue to buy it.

And not just gullible reporters parachuting in from London, either. Larry from Minneapolis writes in a comment:

This is just about the finest article I have ever read about the craigslist phenomenom. My respect for Buckmaster and Newmark is increased 100 fold.

People don't understand that at it's core, craigslist is a revolution.

And no one can stop a revolution.
Larry, Minneapolis, USA

The real Craigslist phenomenon is that reporters keep writing up Newmark and Buckmaster as down-to-earth geeks — and Craigslist users eagerly buy the rhetoric. It's a masterwork of propaganda. But it's as true as Buckmaster's apartment is modest.

Craigslist executives said they abhor the fact that their site is being used for child prostitution but believe that the problem could be harder to track if they removed the category. "It would be a bigger problem if we removed that category and had those ads spread throughout the site," said Jim Buckmaster, chief executive officer of Craigslist.

Buckmaster certainly gives the role of concerned small businessman the appropriate gravitas, but it comes off as a little wooden. Personally, I would have pointed at Dave Elms, jailed proprietor of TheEroticReview and been all, "Why are we the focus of a scary CNN feature? Where's the salacious magazine piece about that guy, Ms. De La Cruz?"

Law.com went to a handful of lawyers to the startup stars to get their unofficial advice on how Craigslist could might have behaved better with counsel in-house, such as wrestling with eBay over the status of the few shares not held by Newmark and Buckmaster. Mike Godwin, general counsel to the Wikimedia Foundation, offered that at his organization no one would blog about a lawsuit in progress, as Buckmaster did. Yes, take a lesson from a lawyer who represents the organization founded by über-slut Jimmy Wales: no matter how nutty Craig and Jim's actions are, having a legal team on the payroll to answer for them is the solution. (Photo: miketippett)

When eBay's then-CEO Meg Whitman was wooing Craigslist founder Craig Newmark and CEO Jim Buckmaster, she was so nice! She even promised that they'd get lots of playdates on the board with dreamy eBay founder Pierre Omidyar, and Newmark and Buckmaster believed her when she said Omidyar held the same Sunday-school values they did:

Mr. Newmark and Mr. Buckmaster were impressed by Ms. Whitman's presentation; most notably the importance to eBay of its community and eBay's dedication to Pierre Omidyar's Community Values — particularly the values that "We believe that people are basically good;" "We believe than an honest, opn environment can bring out the best in people;" and "We encourage you to treat others the way you want to be treated." These were very similar to craigslist's own principles and, in reliance on eBay's expressed commitment to these principles, along with Ms. Whitman's representations, craigslist agreed to resume discussions.

At the time, eBay did not disagree with Craig's impression, but instead enthusiastically embraced it. For example, when Mr. Price [Ed. Note: Garrett Price, VP of new ventures] of eBay (who witnessed virtually all of the negotiations involving the transaction) was provided a late draft of Craig's blog entry, his response was "[I] Love it." However, eBay did not post a link to Craig's blog entry on its own website once the transaction had closed, as eBay had promised it would.

And that was only the start of eBay's bullying behavior. Included in the complaint is a screenshot of text ads on Google that Craigslist offered as evidence of eBay's trademark infringement, false advertising and anti-competitive practices.

Of course, none of this will be settled any time soon — a case management conference isn't scheduled until October 10. And based on how nasty this is getting, I doubt a settlement — at least one not involving lollipops — will be reached anytime soon.(Photo by AP/Jeff Chiu)

Buckmaster may win points in the court of public opinion. Ordinary Craigslist users may well believe his spin, that eBay is the bad guy in this fight for seeking to protect its rights to a stake in the company it bought fair and square (and at a substantial profit to Buckmaster and Newmark).

But the complaint eBay filed makes clear what happened. Newmark and Buckmaster, upset that eBay had launched a competitive classifieds site, Kijiji, invoked a provision that cancelled a right of first refusal they held over eBay's shares — a right that forced eBay to offer its shares first to Craigslist, should it wish to sell. They landed in trouble with eBay by trying to force it to sign a new right-of-first-refusal agreement.

Newmark and Buckmaster, in short, are idiots. In a snit over Kijiji, they cancelled a valuable power they held over eBay. They are now engaging in what appear to be dirty boardroom tricks to reinstate that power, using means eBay finds questionable. It is understandable that they dislike eBay's competition. But had they just kept quiet about it, Newmark and Buckmaster could have kept eBay at bay indefinitely, and kept raking in the lion's share of Craigslist's profits. The trouble they are in now is entirely of their own making.

(Ilustration by Ismael Rodan/WSJ via Craigslist)

But Newmark and Buckmaster have always operated Craigslist more as their private money machine than a real company. That they issued shares to themselves without discussing the matter with eBay, a major shareholder, is merely typical for them.

Here's one more thing that's interesting. A source familiar with Craigslist's stock ownership told me that, of the shares left over after eBay's stake, Newmark owned roughly 60 percent of the remaining shares, and Buckmaster 40 percent. That means Newmark's owns 41 percent of Craigslist, and Buckmaster 27 percent. Here's a disturbing thought: If Buckmaster were ever to switch his loyalties, he and eBay combined own enough of the company to outvote Newmark.

The two appear utterly sympatico, so a Buckmaster defection seems unlikely. But Buckmaster has taken the lead in Craigslist's dealings with eBay. The auction giant, so far, has been the target of Buckmaster's Machiavellian scheming. But he is the swing vote. If Buckmaster turned against Newmark, Craigslist would no longer be Craig's.

[B]reaching their fiduciary duties of care, loyalty, and good faith by implementing certain self-dealing transactions challenged herein which were designed specifically to benefit themselves to the detriment of eBay.

• In 2005, Buckmaster complained that eBay's unfortunately-named classified service Kijiji competed directly with Craigslist, telling then CEO Meg Whitman "we are no longer comfortable having eBay as a shareholder."
• Whitman responded that eBay loved Craigslist, and that "we would welcome the opportunity to acquire the remainder" of the company.
• In October of 2007, Buckmaster and Newmark met with lawyer Edward Wes, and issued themselves "reorganization shares" which diluted eBay's stake under the 25 percent threshold that gave eBay special rights in the election of board members.
• They further tried to poison the share well through right of first refusal clauses that eBay alleges would "make Newmark, Buckmaster, or the Company they control the only possible acquirers of eBay's shares."
• Newmark and Buckmaster didn't bother to tell eBay about these moves, as well as changes to the corporate charter, until January 3rd of 2008. Now eBay wants the moves overturned in the courts.

Unlike the typical Internet site, just about every function on Craigslist, if you're successful in your transaction, is going to involve you meeting the other person in person; whether it's for a job interview, or to look at an apartment, or to buy a used sofa or to go out on a date.

Dear Craig's List, I LOVE U VERY MUCH!!! PRETTY-PLEASE let me know if I can do ANYTHING to support you. I am a Powerful,Licensed Massage therapist in FL who will use ALL of My intellectual BICEPS & anything I've got to be your dutiful minion.

Why, precisely, is Craigslist trying to dilute eBay's stake? Silicon Alley Insider's Peter Kafka speculates that Craigslist is looking for an outside investor. Nonsense; as Kafka himself points out, Craigslist doesn't need the money. Far more likely: Newmark and Buckmaster are angling to issue more shares to themselves so they don't have to share as much of the company's profits with eBay.