Auction site eBay has filed a lawsuit against popular classifieds site Craigslist, claiming that eBay’s 28% stake in its competitor was intentionally diluted by the actions of Craigslist founders, Craig Newmark and Jim Buckmaster.

Details on what these actions were are still sketchy, by there is speculation that Craigslist either brought in another investor, or increased the option pool, causing a detrimental effect on eBay’s minority stake and financial interest in the company. “It’s really hard to say,” says eBay expert Simon Slade. eBay responded by filing the suit with the Court of Chancery of the State of Delaware in order to protect its interests, and have released a statement saying..

“San Jose, Calif — April 22, 2008 — In order to safeguard its four-year financial investment in craigslist, eBay (Nasdaq: EBAY; ) today filed a lawsuit in the Court of Chancery of the State of Delaware challenging recent transactions implemented by craigslist’s board of directors, consisting of Craig Newmark and Jim Buckmaster.

In 2004, after negotiating the transaction with craigslist’s board, eBay acquired a minority ownership interest in craigslist of 28.4 percent.

In January 2008, however, Newmark and Buckmaster adopted measures that, among other things, unfairly diluted eBay’s economic interest in craigslist by more than 10 percent. By taking these unilateral actions, eBay believes that Newmark and Buckmaster breached their fiduciary duties in violation of Delaware corporate law.”

Craigslist responded by saying that the move by eBay was completely unannounced and no discussions between the parties had taken place prior to the complaint, and further went on to say..

“We are surprised and disappointed by Ebay’s unfounded allegations, which came to us out of the blue, without any attempt to engage in a dialogue with us.

Coming from a shareholder that views craigslist as a prime competitor, filing suit without so much as mentioning these assertions beforehand feels unethical somehow, and hints at ulterior motives.”

In a nutshell: eBay acquires a minority stake in Craigslist, a direct competitor, who allegedly respond by trying to weaken eBay’s influence by spreading the pool or compensating other insiders. eBay is pissed off, concerned that it may be losing its grip on a competitor and files a suit, citing a breach of fiduciary duties towards stakeholders and tries and negate the move. Craigslist implies that its investor, eBay has a clear conflict of interest since the two are technically competitors, and thus begins a very messy legal battle.